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Before making a major financial decision you
should consult a qualified professional.
The TD1 forms for 2013 are now available from Canada
Revenue Agency. If there have been changes which will affect your
tax exemptions (see our article), you should ensure that you complete
these forms so that your employer (or other payer) will deduct the
appropriate amount of income tax from your employment income or pension
income. New employees should always complete these forms. For
those working only part time, if your total income for the year will not
exceed your exemptions, you should tick the appropriate box on the back of
the form, so that your employer will not deduct any income tax from your
pay cheques.
Our table of sales tax rates (GST,
HST and provincial retail sales taxes) for 2013 is now available. Quebec's QST rate
increases from 9.5% to 9.975% on January 1, 2013. BC returns to PST,
and Prince Edward Island implements HST on April 1, 2013.
The rate for calculating the operating cost benefit
portion of automobile taxable benefits increases by 1 cent to $0.27 per
km. The rate for automobile sales people increases by 1 cent to
$0.24 per km. The automobile standby charge remains unchanged.
The limits for tax-free vehicle allowances paid to
employees by their employers increase by 1 cent, to $0.54 per km for the
first 5,000 kms, and $0.48 for additional kilometres. Allowances for
the Territories are 4 cents higher, and also increase by 1 cent.
The cost ceiling for CCA purposes remains at $30,000,
leasing cost limit remains at $800 per month, and maximum interest
deduction remains at $300 per month.
Effective February 4, 2013, the Royal Mint will no
longer distribute the one cent coin. Cash transactions will be
rounded to the nearest nickel, non-cash transactions are not affected. POS
equipment may require reprogramming.
It is usually best for the highest income spouse to
claim the tax credit for all donations of both spouses. However,
sometimes not all donations are utilized, and can then either be carried
forward or split between spouses. Our tax calculators will help with
this.
The calculator includes the tax bracket for over
$100,000, and the progressive health contribution, both new for
2013. Tax rate tables have also been revised.
New tax bracket for 2013 for
income over $100,000, with a tax rate of 25.75%. New refundable tax
credit for children. Tax Holiday for Investments (THI) provides a
10-year corporate tax holiday for new projects of $300 million or more
approved within the next 3 years.
We have added a table of
WITB factors for 2013 for all provinces and territories except Quebec. Once we can confirm the
Quebec 2013 factors, we will
publish them - they don't follow the regular QC indexation.
We compare income taxes for a senior with OAS, CPP, pension income, and either Canadian
eligible dividends or "other" income. Significantly less
tax is paid with eligible dividends, even though the OAS is partially
clawed back.
The Basic Canadian Income Tax Calculator has been updated to include
2013. This calculator shows average tax rate as well as marginal tax
rates for capital gains, Canadian eligible and non-eligible dividends, and
other income. It also shows a summary table of taxes by province for
2008 to 2013.
Tables of personal tax rates are now available for 2013 for all
provinces and territories, showing the marginal tax rates for capital
gains, eligible and non-eligible Canadian dividends, and other income.
This refundable tax credit is available to seniors, or family members
sharing their home, for costs incurred on or after April 1, 2012.
The credit is 10% of eligible expenditures, to a maximum of $1,000 per
year.
CRA announced that the 2013 pensionable earnings for 2013 will be
$51,100, up from $50,100 in 2012. The maximum contribution for 2013
will be $2,356.20 for employees, and $4,712.40 for self-employed.
Those who have participated in aggressive gifting tax shelter donation
arrangements in 2012, which provide donation receipts much greater than
the actual donation amount, should probably not claim the donation on their initial tax
return filed in 2013, because CRA apparently will not assess these returns until the
tax shelter has been audited, which could take up to 2 years. A Ways
and Means Motion was tabled in October, including income tax amendments
regarding non-cash donations, even if they are not part of a tax shelter
donation arrangement.
Spousal RRSPs are a great way of ensuring both spouses
will have similar taxable income upon retirement. However, it is
important to know the attribution rules regarding withdrawals from a
spousal RRSP or a spousal RRIF.
PST will be re-implemented in BC effective April 1,
2013. Check to see if you are required to register as a vendor,
which can be done online as early as January 2, 2013. Our PST
articles have been revamped regarding the return to PST.
A Notice of Ways and Means Motion and Explanatory Notes
have been tabled to implement tax provisions which are part of the March
29, 2012 Federal Budget. On October 18th this became Bill C-45, Jobs
and Growth Act.
The March 2012 Federal gross debt is $46.8 billion higher than March
2011. The gross debt as a % of GDP has declined slightly from March
2011. Gross debt per person has increased slightly.
Capital gains can be eliminated by donating capital property, such as securities, to charitable organizations which are qualified donees. This should be done by November or very early December to avoid the busy season and ensure the transactions are completed before year end.
The superficial loss rules provide a method for capital losses to be transferred to a spouse. The spouse must hold the shares for more than 30 days for this to work, so to do this for
2012 you should act fairly soon.
Are you 65 or older at the end of 2012? If you don’t already have pension income which is eligible for the federal and provincial pension income tax credits, you can generate some eligible income by transferring a portion of your RRSPs to a
RRIF, and making a withdrawal this year.
You can also use the pension splitting rules to shift up to 50% of the RRIF income to your spouse’s tax return. If your spouse is also over 65, this will generate a pension tax credit for him/her.
If you have capital losses carried forward and unrealized
capital gains, and are not going to be collecting your OAS pension for a
year or so yet, you may be able to do something now to avoid or reduce an
OAS clawback in the future.
Capital gains, even when eliminated by capital losses
carried forward, can trigger or increase a clawback of OAS benefits or EI
benefits, and can reduce the age amount tax credit and medical expense tax
credit, GST/HST credit, and child tax benefit. Non-taxable income
such as workers' compensation benefits and social assistance benefits can
have the same effect.
Direct sellers can apply to CRA to use the Alternative
Collection Method (ACM), which is a simplified method of collecting GST or
HST. The direct seller then collects GST/HST from independent sales
contractors (ISCs) based on the suggested retail price.
In most cases, a small supplier is not required to register to collect
GST/HST. A quarterly revenue calculation must be
done to check to see if your business has exceeded the small supplier limit.
Surprisingly, you cannot always rely on results obtained from CRA's GST/HST
registry, because it only checks the first 10 characters of the business name.
If you make a withdrawal from a TFSA, it will increase
your contribution room, but not until the
following year. Canada Revenue Agency doesn't track
your deposits during the year, so it's important for you to do this
yourself, to avoid costly errors.
Your employees may work in one province and be paid
from another province. Whether they report to the employer's place
of business (temporary or not) is one of the factors affecting which
provincial or territorial tax tables are used.
There are many tax issues for students and/or their
parents, such as eligibility for tuition and education and student loan
interest tax credits, private school tuition fees, deducting moving
expenses, and child care expenses.
The rates for the donation tax credit include a
lower rate for the first $200 of donations and a higher rate for donations
in excess of $200. The higher rate federally and for each province is the highest
personal tax rate, except for Alberta, Ontario and New Brunswick.
We've updated our tables which show how much can be
earned in Canadian eligible or non-eligible dividends without attracting
income tax, when the dividends are the only income earned.
GIS is available to low-income Old Age Security (OAS)
recipients. It is usually based on the prior year income, but if an
OAS pensioner has a reduction in income, Service Canada may base GIS on
estimated current year earnings.
Whether you are a non-resident employee or actor, or a
non-resident provider of services, it is important to know the
tax consequences of working in Canada as a non-resident.
Now that school's out, make sure you keep receipts for
day camps and other activities that qualify as child care expenses.
If they don't qualify as child care expenses, they may qualify for the children's
fitness or children's arts tax
credits.
CRA announced in a June
27, 2012 news release that it is discontinuing its Telefile service.
No date was indicated for the discontinuation, and there was no indication
whether this included the Telefile for Seniors service.
The borrow to invest calculator helps you see if would
be advantageous for you to borrow to invest in stocks and exchange-traded
funds (ETFs). It has been updated for tax changes in the 2012
provincial budgets.
Not sure which taxable benefits are subject to CPP and
EI deductions, and which ones must have GST or HST included in the taxable
amount? CRA has a chart to guide you on this, as well as a payroll
deductions calculator and automobile taxable benefits calculator.
This table compares total taxes payable for 2012 for
different levels of income from eligible dividends vs non-eligible
dividends vs other investment income, for all provinces and territories.
The new 2012 tax comparison tables show the total income
taxes payable or refundable at various levels of employment income for
each province and territory, for a single person, and for a single-income
family with 2 children.
The TFSA vs RRSP Calculator has been updated for tax
changes in provincial 2012 budgets. This calculator is a tool to
help you decide which type of account is better for your situation.
The RRSP vs Mortgage Calculator has been updated for
tax changes in provincial 2012 budgets. This calculator can help you
decide whether to increase your
monthly mortgage payment, or contribute the extra
monthly amount to an RRSP.
Our article on unlocking pension accounts includes
links to pension regulators, both provincial and federal. Contact the
regulator of your pension plan to determine what you can do
with your locked-in account - don't rely solely on information from your
financial institution.
RRSPs must be converted to RRIFs by the end of the year
in which the holder turns 71, but they can be converted earlier.
Converting some of your RRSP at age 65 allows you to take advantage of the
pension income tax credit, and pension splitting with a spouse. If
making regular withdrawals before age 65, you may save fees by converting
to a RRIF.
An "in kind" withdrawal is a withdrawal of
investments. The total withdrawal amount will include the market
value of the investments, plus applicable withholding tax.
The Detailed Canadian Tax Calculator has been updated
for changes from provincial budgets, including enhanced dividend tax
credit changes (BC and MB), new Ontario tax bracket, new SK home buyers'
tax credit, BC and ON seniors' renovation tax credits, and BC child arts
and children's fitness tax credits.
The Basic Canadian Tax Calculator has been updated for
changes from provincial budgets, including changes to the enhanced
dividend tax credit for Manitoba and BC, and the new Ontario tax bracket
for income over $500,000.
Every employee must provide a completed TD1 form to a
new employer, and must update it when a change in circumstances will cause
a change in personal tax deductions. The form will be completed
differently when there are multiple employers, as deductions can only be
claimed once. For deductions that are available but are not on the
TD1, a Letter of Authority can be requested from CRA so that the employer
can reduce the tax withholdings.
If income-producing property, or money to purchase
income-producing property, is transferred or loaned to a spouse or related
minor child, attribution rules will apply to tax the income in the hands
of the transferor. This will not apply to loans which are
considered "genuine" loans.
Up to $25,000 per person can be withdrawn from an RRSP
in order to buy or build a qualifying home, without attracting withholding
tax. If all conditions of the HBP are not subsequently fulfilled,
cancellation can be requested and funds repaid within a time limit, in
order to not be included in income in the year of the withdrawal.
Bill C-38, Jobs, Growth and Long-term Prosperity Act,
was introduced on April 26, 2012, including key elements of the Federal
2012 Budget, as well as other previously announced measures.
Taxpayers can voluntarily correct inaccurate,
incomplete, or unreported information, and do so without penalties or
prosecution, if a valid disclosure is made to Canada Revenue Agency
(CRA). A voluntary disclosure can be made on a no-name disclosure
basis.
Prince Edward Island plans to implement the HST, with a
rate of 14%, effective April 1, 2013. A refundable volunteer
firefighter tax credit is being introduced.
The Ontario government announced that it would revise
the budget to implement a 2% surtax on personal taxable income in excess
of $500,000, as a concession to the NDP opposition party. See our
table of the resulting rates.
Even if you don't owe any tax or have any taxable
income, there are many reasons to file a return - applying for the GST/HST
credit, establishing TFSA and RRSP contribution room, receiving refundable
tax credits, to name a few.
Manitoba's 2012 Budget reduces the enhanced dividend
tax credit rate starting in 2012, and introduces retail sales taxes on
certain personal services and some insurance products. Tobacco taxes
and fuel taxes are increased.
It is important to have your will reviewed occasionally
to ensure that it will fulfill your wishes under current
provincial legislation. In some provinces, a will is automatically
revoked upon the marriage of the testator (will writer), or after the
testator has been in a marriage-like relationship continuously for 2
years.
Increases in spouse, equivalent to spouse, and
disability tax credit amounts for 2012. Affordable Living and Poverty
Reduction credits to increase July 1, 2012, HST reductions in 2014 and
2015, doubling of New Home Buyers HST Rebate, corporate tax reduction, Equity Tax Credit and
Labour-Sponsored Venture
Capital Tax Credit extended.
Application forms are now available for the BC
First-Time New Home Buyers' Bonus, available for eligible new homes built
or purchased on or after February 21, 2012 and before April 1, 2013.
A refund of up to $10,000 is available. Application must be made to
the Ministry of Finance - it is not done on the income tax return.
Futures contracts are not qualified investments for
RRSPs, RRIFs or TFSAs. The gains or losses on futures contracts may
be capital or income, depending on the circumstances.
All provinces except Ontario and Quebec use the Federal medical expense total to calculate the provincial
medical expense tax credit, but the base amount is different from the Federal
for most provinces. Quebec has their own calculation. Ontario
follows the Federal calculation but has limitations on amounts for
attendant care, and higher limitations than the Federal for vehicles
adapted for disabilities, and for moving expenses for a patient's move to
more accessible dwelling.
The 2012 Federal Budget confirms that the age of eligibility
for the OAS/GIS will be increased from 65 to 67, on a gradual basis,
starting in 2023. Starting in 2013, voluntary deferral of the OAS
will be allowed, resulting in a higher pension.
Return to a balanced budget is planned for the
2015-2016 budget year. The penny will no longer be produced, but
this will only affect cash transactions. Starting in June 2012,
Canadian travellers can bring home a higher value of duty- and tax-free
goods after travelling abroad. There are many other changes,
including RDSPs, Employee Profit Sharing Plans, Retirement Compensation
Arrangements, Accelerated Capital Cost Allowance, and much more.
The province is taking measures to control costs,
including pay freezes for MPPs and executives at hospitals and educational
institutions. The Corporate Income Tax rate is being frozen at 2011
levels, and Business Education Tax reductions will be discontinued.
There were no increases announced to personal income
taxes or HST. Rate increases were announced for Real Property
Transfer Tax and Financial Corporation Capital Tax.
New tax credit for first-time home buyers, corporate
income tax rebates for income from newly constructed multi-unit rental
projects, and some other tax measures that were previously announced in
the December throne speech.
You might qualify to use the HBP to help buy or build a
home, even if you own a rental home, as long as the rental home has not
been your principal residence during the previous four years. If you qualify to make use of the
HBP, you will probably also qualify for the First-Time Home
Buyer's Tax Credit.
When investments such as stocks, bonds, etc. are
purchased or sold, there are two important dates - the trade
date, and the settlement
date. You need to know this to record your transactions in the appropriate
tax year.
These must be reported in Canadian dollars. Our article explains how to convert the amounts to Canadian dollars. We also have an article detailing the non-business foreign tax credit.
CRA now requires the NAICS code for a corporation to be
entered on the T2 tax return. Statistics Canada has a drill-down
table which makes it easier to find the appropriate code.
CRA has published a Notice with questions and answers
on the elimination of the HST, and there is also a PST in BC website
providing information on the return to the PST.
Starting in April, you will be able to ask questions about your tax accounts online,
and CRA will answer electronically, so you'll have the answer in
writing. You can get answers to specific tax
account-related questions for certain business accounts.
Home energy audits must be completed by March 31, 2012
to qualify for a rebate of up to $150. Receive up to $650 when
replacing your old central heating and cooling systems with the
saveONenergy HEATING & COOLING INCENTIVE.
In December, the Throne Speech announced that SK would
be implementing a First-Time Homebuyer's Tax Credit for 2012. This tax credit will also be available to people with disabilities
looking to purchase a home that is more accessible. See the
Throne Speech highlights for details of further initiatives.
Prior to 2011, there was a limit on the amount of
medical expenses that could be claimed for other eligible
dependants. The amount was $10,000 per person claiming the expenses,
for most provinces and territories. This limit has been removed for
2011 for most provinces and territories, and is being removed for BC for
2012. Only Ontario and NWT still have a limit for 2012.
The BC HST will be eliminated effective April 1, 2013,
and BC will return to a GST plus PST system. The federal Department
of Finance has published proposed transitional rules, which describe how
and when the HST would cease to apply to transactions that straddle the BC
HST end-date.
The Nunavut 2012 Budget was tabled in the legislature
on February 22, 2012. There were no income tax changes announced,
but the tax on tobacco products will increase in an effort to reduce
tobacco consumption.
The 2012 BC budget was tabled in the legislature on
February 21, 2012. New tax measures include a Seniors' Home
Renovation Tax Credit, Children's Fitness and Arts Tax Credits, and a New
Home Buyers' Bonus.
Alberta's 2012 budget was tabled in the Alberta
Legislature on February 9, 2012. There were no personal income tax
changes. Education property tax rates will be frozen at 2011 levels.
The Scientific Research and Experimental Development (SRED) Tax
Credit will be enhanced by eliminating the "grind" (no longer
deducting the federal investment tax credit when calculating Alberta's
credit).
There are some types of employment payments and other payments from which CPP
or QPP contributions do not have to be deducted. Also, if a person has more than one employer in the
year and earns total employment income which is less than the maximum
pensionable earnings, this will have the result that the basic exemption
used to withhold CPP or QPP contributions is more than $3,500, resulting
in an underpayment of contributions. There
is no obligation to remit the underpaid amount, but a person can elect to
do so, or to pay Canada Pension Plan
contributions on certain types of income from which no CPP contributions
have been deducted.
This article discusses which tax deductions or credits can be claimed by either spouse. In some circumstances, the income from dividends from taxable Canadian corporations can all be claimed by one spouse.
If
you moved at least 40km to be closer to a new job, to run a business, or
to attend a post-secondary educational institute full time, then you may
deduct moving expenses, up to the amount you earn at the new location, or
up to the amount of taxable award or scholarship income received in the
year.
If you have a parent or grandparent over the age of 65 living with you, even if they are not your dependent you could be eligible for the caregiver amount of $4,282, if their net income is less than
$18,906 in 2011. This can also be claimed for dependent relatives over the age of 17 who are living with you, if they are dependent on you due to mental or physical impairment. Each province and territory also has a caregiver tax credit.
December 2011 wages, if not paid until January 2012, will be reported on a T4 for
2012, not 2011. There are some cases in which it is not necessary to prepare a T4 for an employee. Learn about filing T4 slips online - this can be done for up to
50 T4s, without any software required.
Our new basic Canadian income tax calculator is very
simple - just input your income from capital gains, eligible and
non-eligible Canadian dividends, and other income. The results
include taxes payable, and marginal tax rates for the 4 different types of
income, for every province and territory, as well as a table of taxes
payable for 2008 to 2012 for each province and territory. The only
tax credits deducted from taxes are the basic personal amount and dividend
tax credits. Use the e-mail link at the bottom of the calculator to
tell us how you like it.
We have published the table of WITB factors for 2012. The WITB is a federal refundable tax
credit which is available for low-income individuals or
families with working income over $3,000 for most provinces and
territories. The Quebec 2011 WITB table has some factors revised by
small amounts. The previous factors were estimated based on the QC
indexation factor for 2011. The 2011 factors for other provinces and
territories have been adjusted for rounding differences from the previous
estimates.
The Ontario Trillium Benefit is applied for by
completing form ON-BEN as part of the 2011 personal income tax return, as
well as by applying for the GST/HST credit on page 1 of the personal
income tax return. This benefit is a combination of the Ontario
Sales Tax Credit (OSTC), Energy and Property Tax Credit (OEPTC), and
Northern Ontario Energy Credit (NOEC), and will be paid on a monthly basis
starting July 2012.
The Federal Guaranteed Income Supplement (GIS) is a tax-free benefit available to
low-income seniors living in Canada, who are receiving (or are eligible to
receive) the Old Age Security Pension (OAS). An application must be
filed to receive this supplement - it is not done automatically
when you file a tax return. If you are already receiving the GIS, if
there is a reduction in your pension or employment income,
you should contact Service Canada, as they may calculate your GIS benefit
by estimating your pension and employment income for the current
year, instead of using last year's pension and employment income.
A loan by a corporation to one of its shareholders, or to a person or
partnership who does not deal at arm's length with the shareholder, may result
in a deemed taxable benefit for the amount of the loan, or may result in a
deemed interest benefit.
Care must be taken in the
timing of salary or dividend payments to clear shareholder loans.
If the amount of the
loan is significant, it could put a small business in a position
where it is not a qualified small
business corporation, and thus not eligible for the $750,000
lifetime capital gains exemption for the shareholder, on disposal
of the shares.
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