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Before making a major financial decision you
should consult a qualified professional.
The TD1 forms for 2018 are 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.
Employment income is included on a T4 for the year in which
it is received, not earned. If a payment is made in
January 2018 for wages earned in December 2017, this amount will be reported on the
2018 T4, not on the 2017 T4 (see exception re employee trusts).
This month's 10 minute video discusses: Pre-Budget
Consultations for 2018 federal budget; Latest draft legislation re small
business income sprinkling; CRA handling of disability tax credit
applications for type 1 diabetics; Taxation of cannabis.
The per-kilometre
amounts that
may be paid
tax-free to employees or officers as reimbursement for
motor vehicle expenses incurred while travelling for
business purposes using their personal vehicle will increase by 1 cent, to 55 cents per km for the first 5,000 km and
49 cents per km for each
additional km. For the Territories, the rates are also increased by 1
cent, to 59 cents per km for the first 5,000 km and 53 cents per km for each
additional km.
The prescribed rate used
to determine the operating cost taxable benefit to an employee for an
employer-owned vehicle is increased for 2018 by 1 cent, to 26 cents per
kilometre. The standby charge taxable benefit factors for automobiles
remain unchanged.
The
prescribed rate used to determine the operating cost taxable benefit to an
automobile sales person for an employer-owned vehicle is increased for 2018 by 1
cent, to 23 cents per kilometre. The standby charge taxable benefit
factors for automobiles remain unchanged.
The 2018 expense
limitations for passenger vehicles for interest expense, monthly lease costs,
and capital cost allowance (CCA) will remain unchanged from 2017.
If you made RRSP contributions from March
1, 2016 to March 1, 2017, this should have been included on Schedule 7 which
was filed with your 2016 tax return. Check our article to find out what
to do if the contribution wasn't recorded.
The rates for 2018 maximum withdrawals from
federally-regulated LIFs and LRIFs are now available on the website of the
Office of the Superintendent of Financial Institutions.
The government has released draft legislation which will
enact changes to the Tax on Split Income (TOSI) rules, also known as the
"kiddie tax" rules. The legislation expands the "income
sprinkling" situations in
which income is considered "split income" and is taxed at the highest
personal income tax rate. This is no longer just a "kiddie" tax. The legislative changes are to be in effect
for the 2018 taxation year.
Changes to the VDP will take effect on March 1, 2018, when a
new "Limited Program" will apply to taxpayers who have intentionally
avoided their tax obligations.
This detailed income tax calculator includes the most common deductions and tax
credits, and pension splitting. It is a
tax planning tool and financial planning tool, but will not actually file your tax return for you. It will be especially
useful as a tax planning tool for those who have some control over their income.
The purpose of these calculators is to show the big
difference in taxes payable on different types of investment income.
Even when the age credit and Old Age Security are clawed back, Canadian
dividends and capital gains result in the least taxes payable when
compared to other types of income such as foreign dividends and interest.
Eligible Canadian dividends are increased by 38% for
inclusion in income, resulting in increased net
income for tax purposes, which is
often used in calculating eligibility for income-tested
benefits. If you are in a low tax bracket and receive
income from dividends, you should review your finances to
avoid jeopardizing government benefits. Keep in mind that taxes are much
lower with Canadian dividends and capital gains than with interest income.
The Quebec 2017/2018 tax planning calculator is now
available, and includes the retroactive tax rate reduction for 2017 as well as
other recent tax changes made federally.
The Basic Income Tax Calculator has been revised for 2017 to
reflect the Quebec fall tax changes, and for 2018 to reflect the recent changes
made federally and by New Brunswick. Compare taxes and marginal tax rates for both types of
Canadian dividends, capital gains, and other income, for all provinces and
territories, for 2013 to 2018. Tax bracket thresholds and tax credit
amounts have not yet been confirmed to Canada Revenue Agency.
Is it taking longer than 8 weeks to get your paper-filed personal tax
return or T1 adjustment request assessed? Longer than 6 weeks to get
your digital corporate tax return assessed? Once you have tried to
resolve this by talking to CRA agents (make sure you record their name and
agent number) with no success, you have a right to file a service
complaint with CRA. Their standard for resolving service complaints
is 30 days. If you have no success by filing a service complaint,
you can file a complaint with the Taxpayers' Ombudsman.
This month's 10 minute video discusses: how CRA is
taxing the income of TFSAs of aggressive investors, and taxing the
employee benefit of employer-provided parking; update on possible taxation
of employee discounts on merchandise; more information on the proposed
small business tax changes re income sprinkling and passive investment
income.
Effective January 1, 2018, the rate on taxable
purchases of electricity (e.g. electricity for business use)
will be reduced to 3.5% from 7%, until March 31, 2019. Effective April 1, 2019, electricity in BC will be exempt from
PST.
If you have earned income in 2017, this generates RRSP contribution room for 2018. If you are turning 71 in 2017, you can only use this room to contribute to the RRSP of a younger
spouse in 2018 or a later year, or by making an
excess contribution to your own RRSP in 2017, because your RRSP must be converted to a RRIF by the end of the year. The excess contribution should be done in December to minimize the penalty.
If your RRSP has been converted to a RRIF already, you can probably still do
this.
Haven't filed your 2007 tax return yet? Taxpayers are running out of time to file requests under the taxpayer relief provisions for the
2007 tax year and any reporting period that ended in the 2007 calendar year.
As a result of a Federal Court of Appeal Case, Bozzer v
Canada, the taxpayer relief provisions (fairness provisions) can apply to
reduce interest and penalties which have accumulated in the 10 taxation
years preceding the request for leniency, even if the tax debt causing the
interest arose prior to that period. So, if a tax debt arose from
the 2004 tax year, penalties and interest that have accumulated from 2007
to 2017 could still be reduced as a result of a 2017 request for leniency.
If you turned 71 this year, your RRSP must be converted to a RRIF, or used to purchase an annuity, by December 31st, which is a Sunday, so
probably by Friday December 29th. If you turned 65 this year, you may want to convert some of your RRSP to a RRIF before December 31st, to take advantage of the pension income tax credit, and perhaps pension splitting with your spouse.
There is no deadline for contributions to a TFSA, as
the unused contribution room is carried forward into the next year.
However, a withdrawal in any year increases the TFSA room in
the following calendar year. Thus, if you are thinking of making a
withdrawal soon, make sure it is done by December 31st, in
order to have your TFSA room increased by the withdrawal amount on January
1, 2018.
The last trading date in 2017 for Canadian and US publicly
traded stocks is Wednesday, December 27th. Stocks purchased or
sold after this date will settle in 2018, so any capital gains or losses
on sale will apply to the 2018 tax year. The settlement date is
now 2 days after the trading date - it was 3 days prior to September
5, 2017.
Quebec's tax deductions and tax credits subject to indexation
were adjusted by 0.82% for 2018. Some of the amounts are rounded to the
nearest dollar, and some are rounded to the nearest $5.
The maximum pensionable earnings for QPP for 2018 is $55,900.
The rate is 5.4%, 10.8% for self-employed, which is unchanged from 2017.
After the exemption of $3,500 per year, this results in maximum QPP
contributions of $2,829.60 for employees/employers, or $5,659.20 for
self-employed.
Quebec
announced a reduction in the 2017 rate applicable to the lowest tax bracket,
from 16% to 15%, with a corresponding reduction in the rate used to calculate
most non-refundable tax credits. The 2017 and
2018 tax rate tables have been revised for these changes. A new annual
supplement of $100 per year will be provided for the purchase of school supplies
for minor children. The general and adapted work premiums will be
enhanced. Changes were announced regarding deductibility of increased
Quebec Pension Plan premiums starting in 2019.
We've revised the Ontario marginal tax rates for non-eligible
dividends. Originally our table was based on their announced dividend tax
rate for 2018 of 3.2863%. However, their legislation change does not
reflect this rate unless the gross-up remains at 17% for 2018. It's quite
possible they will not make further legislative changes, so our table now
reflects the rate of 3.1197% as per the current legislative changes.
Service Canada
provides an interactive pdf file, in which you can click Yes or No to answer
questions to determine your eligibility for OAS or Guaranteed Income Supplement
(GIS). There is also a printable pdf file.
The Federal small business corporate income tax rate is reduced to 10% effective January 1, 2018. There
are both increases and
reductions of corporate tax rates in some of the provinces.
When dividends are received from
Canadian Controlled Private Corporations (CCPCs) in 2018, 116% of the dividend
will be included in taxable income, and the non-eligible, or regular, dividend
tax credit is available, resulting in a favourable tax rate. See the table
of marginal tax rates for your province. There are many automatic changes in the tax
credit rates for 2018 due to the change in the gross-up from 17% to 16%.
Further changes may be coming, as provinces review their legislation.
When dividends are received from Canadian public
corporations, 138% of the dividend is included in taxable income, and the
dividends are eligible for the enhanced dividend tax credit, which results in a
tax rate lower than that for interest or foreign dividends. See the table
of marginal tax rates for your province. The only
change in the tax credit rate from 2017 to 2018 thus far are for Saskatchewan and
Yukon.
On November 14, New Brunswick tabled Bill 23 which reduces
the small business corporate income tax rate to 2.5%, and revises the
non-eligible dividend tax credit rate for 2018, 2019 and subsequent taxation
years. The 2018 table of marginal tax rates has been revised to reflect
this change.
Ontario announced that the small business corporate income
tax rate will be reduced from 4.5% to 3.5% effective January 1, 2018, with a
corresponding reduction to the non-eligible dividend tax credit rate, to
3.2863%. However, the bill they tabled results in a tax credit rate of
3.1197%, which we have used in their tax rate tables..
Ontario's 2017 Budget introduced a refundable tax credit for
public transit costs for seniors who are at least 65 at the end of the previous
taxation year, for costs incurred on or after July 1, 2017. Up to $1,500
of transit costs can be claimed for 2017, for a refundable credit of $225.
In 2018 the maximum claim will be $3,000.
If you'd like to provide your opinions to the federal
government on the upcoming budget, you can do so by completing their surveys, or
sending them an email. No end date for the consultations has yet been
announced.
On November 7th, Saskatchewan passed Bill 84, which increases
the general corporate income tax rate to 12%, increases the small business
deduction threshold to $600,000, and increases the enhanced dividend tax credit
rate to 11%. All revisions are effective for the 2018 and subsequent
taxation years.
Compare taxes and marginal tax rates for both types of
Canadian dividends, capital gains, and other income, for all provinces and
territories, for 2013 to 2018. Tax bracket thresholds and tax credit
amounts have not yet been confirmed to Canada Revenue Agency.
We've revised the Nova Scotia 2018 marginal tax rate tables
to reflect the additional $3,000 personal amount which is reduced at the rate of
6% in excess of taxable income over $25,000. This increases the marginal
tax rate for taxable incomes between $25,000 and $75,000. The regular
personal amount of $8,481 does not affect marginal tax rates for taxable incomes
over $8,481, because it is not reduced as taxable income increases.
The BC government announced the creation of a task force to
advise on eliminating MSP premiums within four years, and to examine the best
approach to replacing the revenue from the premiums. Their final report is
due March 31, 2018. British Columbians are encouraged to express their
views on how to replace the revenues from the premiums.
The CPP maximum pensionable earnings for 2018 is $55,900, up
from $55,300 in 2017. With the rate unchanged at 4.95%, the maximum
employer/employee contribution will be $2,593.80, and $5,187.60 for
self-employed.
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.
We've published the tables of non-refundable tax credits for 2018 for
Canada and all provinces and territories except Quebec. These
amounts have not yet been confirmed to Canada Revenue Agency amounts.
The Nova Scotia 2017 Budget announced enhancements to the Basic
Personal, Spousal, Eligible Dependant, and Age Amounts. The
enhancements are additional tax credits calculated separately from the
usual tax credit, and are not shown in the tables of non-refundable tax
credits.
This month's 10 minute video talks about categories of
corporate expenses for which CRA now wants more detail; Interesting quirks
regarding CPP survivor benefits; Corporate management fees between related
companies; Investment management fees for registered accounts, paid
outside of the registered account, = tax advantage starting 2019, taxable
at 100%; Setting up a legacy contact on Facebook (good plan); Trump
administration plan for the US Tax Code.
We have published our 2017/2018 tax rate tables, which show the combined
federal and provincial/territorial tax rates for capital gains, both types of
Canadian dividends and other income. The indexation factors, tax brackets
and tax rates have not yet been confirmed to Canada Revenue Agency numbers.
The Fall Economic Statement announced changes in the gross-up rate and
dividend tax rate for eligible dividends, in conjunction with the reduction of
the small business corporate income tax rate for 2018 and later years. No
legislation has yet been tabled regarding private corporations income
sprinkling and passive investment income. The Canada Child Benefit will be
indexed beginning July 1, 2018, and the Working Income Tax Benefit will be
enhanced in the 2019 taxation year.
The Federal government announced on October 18, 2017 that the income
earned from past investments will be protected, and a $50,000 threshold on
passive income in a year will be available to provide more flexibility for
business owners to hold savings for multiple purposes.
The Federal government will not go ahead with proposed changes to the
Lifetime Capital Gains Exemption (LCGE), and will simplify the proposed
changes regarding income sprinkling so that most private corporations are
not affected. Revised draft legislative proposals will be released
later in the fall, to be effective in 2018.
The Federal Government announced on October 16, 2017
that the small business corporate income tax rate, for Canadian-Controlled
Private Corporations (CCPCs) would be reduced to 10% effective January 1,
2018 and to 9% effective January 1, 2019. Any possible changes in
gross-up rate or dividend tax credit were not addressed.
This month's 10 minute video sheds more light on proposed changes to private
corporation tax planning. If you own a small business, whether
corporation or partnership, even informal partnership, high income or low
income, be sure to watch
the video.
If you own one or more rental properties, the motor vehicle
expenses you can deduct depend on a few factors. Make sure you keep all
receipts, and have a log of all your mileage, and all mileage related to your
real estate rentals.
International students studying in Canada may have to file a
Canadian income tax return. See the Canada Revenue Agency (CRA)
information on International
students studying in Canada, and our article on Who Pays Tax in Canada.
The pre-election budget tabled by NS in April was not
passed. The new September budget reflects the same tax changes: increased
basic personal, spousal, eligible dependant and age amounts for 2018, and
increased small business threshold effective January 1, 2017.
BC's MSP rates have been reduced by 50% for all British
Columbians. No need to apply for premium reduction unless your ADJUSTED
net income is less than $42,000.
The Canadian Income Tax Calculator for 2017 has been updated
to include the BC September 2017 Budget Update changes regarding the reduction
of MSP premiums for 2018, which are based on 2017 income.
If you plan to make a spousal RRSP contribution online, BE
CAREFUL! You probably have to be logged into the spouse's RRSP account
online to do this, and indicate it is a spousal contribution. If you're
not sure about what you're doing, don't do the contribution online.
Capital losses can be transferred to a spouse by utilizing
the superficial loss rules. Your spouse must hold the shares for more than 30 days
after your disposition before selling the shares.
Capital gains can be eliminated by donating certain types of capital property (qualified investments, prescribed debt obligations, or ecologically sensitive land) to qualified
donees.
If you were planning to make a donation of cash but could donate property
instead, you can save some tax money. Best to do this by the end of
November for shares, or possibly months earlier for mutual funds. If neither you
nor your spouse has claimed a donation tax credit in the past 5 years, don't
forget that this is the last year for the First-Time
Donor Super Credit.
The 2018 EI rate will be $1.66 per $100 of insurable
earnings, up 1.84% from the 2017 rate. The maximum insurable earnings (MIE)
increases to $51,700 from $51,300. Quebec's premium rate for 2018 will be
$1.30.
Manitoba Budget 2018’s pre-budget consultations will give Manitoba families the opportunity to share their views on three key issues for Manitoba’s future: sustaining health care, controlling marijuana use and balancing the budget.
This budget takes the MSP reduction a little further and
makes it applicable to all British Columbians, eliminating the need to apply for
the reduced premium. A new top tax rate of 16.8% is introduced for 2018,
and the general corporate tax rate is increased for 2018, while the lower small
business tax rate for 2017 is confirmed. Some personal tax credits are
eliminated, many other changes.
If one spouse is in a higher tax bracket, it may be beneficial to lend
money to the lower-income spouse or to a child, with the funds being used to purchase
investments. Tax on
the investment income will be paid by the lower-income
spouse at a lower marginal rate. In order for this to work, interest
must be paid by the spouse or child, at a minimum prescribed rate.
You should be thinking about this now, even if you are just
starting out in your career. This will be different for everyone, but we
provide some guidance to help you figure things out. We advise you to plan
to live off your dividends once you retire, instead of drawing down your
investments, if at all possible.
If you have made your 2017 RRSP contributions already, you
can complete a CRA form to get permission for your employer to deduct less
income tax from you. If you are self-employed, you may be able to reduce
your instalments.
Links to information on services provided by the federal and
provincial/territorial governments, for seniors, persons with
disabilities, low-income,
children, families, students and
others.
This month's 10 minute video includes: Proposed changes to private
corporation tax planning; GST/HST on taxi and commercial ride-sharing
services (e.g. Uber); CRA collecting penalties for the IRS; IRS targeting
Canadian companies with business in the US; Proprietorship - business loss
vs personal venture; Indirect verification of income (IVI) by CRA by
examining taxpayer records; Checklists for charities.
When an individual earns income from the rental of real property, it
may be considered business income (self-employment income) instead of property
income (investment income). These
2 types of income are treated differently for tax purposes. This
affects CPP premiums, among other things.
The withholding tax rate depends on the amount withdrawn as well as other
factors. You may have to pay more tax or get a refund depending on your
total taxable income when your tax return is filed. When multiple lump-sum
withdrawals are made, the withholding tax rate may be based on the total of
those withdrawals in the year.
There are three types of benefits that can be paid upon the death of a CPP
contributor - a lump sum death benefit, a monthly survivor's pension to
the spouse or common-law partner, and a monthly children's benefit payable to
dependent children.
Do you qualify for the Disability Tax Credit? See
our article, which explains the requirements to qualify for this tax
credit. We have a link to very detailed information on
the Canada Revenue website, which describes qualifying impairments, in
text and video format. If you have qualified for this credit for a
number of years but have not claimed it, adjustments to your tax returns
can be filed to claim it for up to 10 years.
There are many tax issues for students and/or their
parents, such as eligibility for tuition, education and student loan
interest tax credits, private school tuition fees, deducting moving
expenses, and child care expenses.
The BC Liberal government was defeated in a confidence vote,
so the 2017 budget was not passed. The new NDP government will be tabling
a budget up date on September 11, 2017.
Starting September 5, 2017, the settlement date for trades of
equities, corporate and long-term government bonds, mutual funds and ETFs will
be 2 business days after the trade date, shortened from 3 business days.
Tax-Free Savings Accounts are available for Canadian
residents who are 18 years of age or older. However, a person must have
reached the age of majority in their province or territory in order to open a
TFSA brokerage account, which can hold shares in corporations. The age of
majority is 19 in some provinces and all 3 territories. See our extensive
information about TFSAs.
Topics for this 10-minute video include the proposed tax
changes re private corporations; CRA's retrieval of information from 3rd
parties; Distributions of non-taxable amounts to non-residents; TFSA survivor
payments; Managing affairs upon intestate death; and Reconciling shareholder
draws.
The table of donation tax credit rates for 2017 is now
published, and shows the amount of employment income required to completely
utilize a $1,000 donation. If you've never made a donation before, don't
forget that this is the last year for the First Time Donor's Super Credit.
Canada Revenue Agency (CRA) has proposed radical changes to
the Voluntary Disclosure process, and the public is invited to provide
feedback. Our article on the VDP now includes a link to coverage of the
proposed changes and their implications.
The Department of Financed published draft legislation to
address tax planning strategies utilized by private corporations, including
income/dividend sprinkling, passive investment income, and converting income
into capital gains. They are inviting comments on the proposed
legislation. Comments must be made by October 2, 2017. The article
includes a link to a helpful Video Tax News presentation on the proposed tax
changes, as well as a link to the article "Is a 93% Tax Rate Fair to Canadian Small Business Owners?"
There is no "gift tax" in Canada. Any
resident of Canada who receives a gift or inheritance of any amount from almost
any source
(except from an employer) will not have to include this in
their income. However, if capital
property is
given as a gift, the person who has given the gift will be deemed to have sold
the capital property at fair market value, and will have to pay tax on any
resulting capital gain.
Make
sure you keep the receipts for summer activities for your
children that could qualify as child care expenses. Some examples of eligible child care expenses
include day-care centres and day nursery schools, some individuals providing child
care services, day camps and day sports schools, educational institutions such
as private schools (the
portion of tuition costs relating to child care services), boarding schools, and
overnight sports schools and camps.
A reasonable per-kilometre allowance is tax-free to the
employee, deductible by the employer, and is the easiest method for an employee to recover vehicle expenses.
Topics: Possible upcoming tax changes for private
corporations; Tax preparers program; Feedback on CRA audits; Proposed
changes to Voluntary Disclosures Program (VDP); Changes done to Small
Business Deduction (SBD).
Please read this article to understand the tables of
marginal tax rates, especially if you're trying to compare to one of our
tax calculators, such as the Basic Income Tax Calculator. In our tables, the marginal tax rates for capital gains and dividends at any
income level (say $60,000) are the marginal rates on the next dollar of actual
capital gains or actual dividend income, if the taxpayer has $60,000 of taxable
income from sources other than capital gains or Canadian dividends.
A
notice of ways and means motion to amend the Income Tax Act was issued May 18,
2017, with the intention
to exempt the military salaries of all Canadian Armed Forces personnel deployed
on named international operations from federal income taxes, up to and including
the pay level of Lieutenant-Colonel.
The
CPP Retirement Pension Calculator can help you decide at what age to start
receiving your CPP. You'll need your CPP Statement of Contributions for
this.
Topics: Parking can be a taxable benefit to employees,
as can employee discounts on merchandise; Are your investment gains income
or capital gains?; Part XII.2 tax re distributions to non-resident
beneficiaries; Disposition of farm property by a non-resident; Billed-basis
accounting FAQ (lawyers, accountants, etc); Small business deduction for farmers
and fishers.
We compare taxes paid in each province/territory by a senior with eligible
dividends vs other income (foreign dividends, interest, etc.) - see how the
taxes (including OAS clawback) are significantly lower with eligible dividends.
See the taxes paid at varying levels of eligible and non-eligible dividends
and interest for all provinces and territories. The lowest-tax provinces
for higher levels of eligible dividends is AB. ON is the
lowest-tax province at $100,000 of non-eligible dividends.
We compare taxes paid on varying levels of employment income for all
provinces/territories, for a single person, and for a family with 2 children.
Ontario, Alberta and BC are again the lowest tax provinces for a single person earning $50,000. For a single income family with 2 kids
aged between 6 and 17, and $50,000 employment income, Saskatchewan is the lowest tax province.
Taxes include CPP contributions and EI premiums, BC MSP premiums, ON Health Premium, and QC prescription drug premiums.
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.
Alternative minimum tax kicks in when eligible dividends exceed $51,637. Over $100,000 in eligible dividends can be earned in
Alberta, BC, NB and NT before attracting regular provincial income tax, but of
course federal income tax and provincial alternative minimum tax will be
payable.
The income tax varies greatly depending on the type of
investment income you earn, whether Canadian eligible or non-eligible dividends,
capital gains, or other income such as interest or foreign dividends.
Alberta's Bill 15, Tax Statutes Amendment Act, 2017, was
tabled on May 17, 2017. It sets the dividend tax credit rate for
non-eligible dividends at 54/359ths of the gross-up, or 2.19% of the taxable
dividend. The Alberta marginal tax rate table for 2017 has been revised to
reflect the change.
You should plan ahead so that you are prepared to file your
tax return next year without too much difficulty. One of the most important things to do during the year is
to store all tax-related documents in one place. See our list of these
documents.
Are you trying to decide whether to increase your
monthly mortgage payment, or contribute the extra
monthly amount to an RRSP? Let our RRSP
vs mortgage calculator, updated for 2017 budgets, help you make the decision. Although we
use the term "mortgage", the calculator also works for regular
loans.
You are better to pay off your
mortgage first if your mortgage interest rate is equal
to or higher than the rate of return on your RRSP. However, if the rate of return on your RRSP is consistently
higher than the mortgage interest rate (can you guarantee this?), you
would have more money by paying only the required amount on your mortgage, and
investing extra funds in an RRSP.
The TFSA vs RRSP Calculator, updated for 2017 budget
revisions, can help you decide which type of
account is better for you. This will depend on your current age, annual income now
and after retirement, province of residence, as well as other factors.
The Borrow to Invest Calculator, updated for 2017
budgets, helps you to see the
advantages of borrowing to invest in stocks and exchange traded funds (ETFs). You can input different interest rates, rates of return and other data to
compare scenarios. Borrowing to invest is not advised for a novice
investor - please read our article on Borrowing
to Invest.
You should not consider this strategy unless you
have owned stocks for at least a couple of years. We recommend this
because investing is a learning experience, and you may make more mistakes
when you are just starting out. These mistakes are magnified if you
borrow to invest, because you will have more money invested. You also have to be able to sleep at night! If
borrowing to invest keeps you awake at night, it is probably not for you.
This calculator has been revised to include revisions from
all 2017 budgets. Changes include ON and SK tuition and education tax
credit revisions, BC and NB non-eligible dividend tax credit rate changes, SK
lower tax rates and revised enhanced dividend tax credit, PE personal tax credit
increases, and new federal and ON caregiver tax credits. This calculator
is a great tool to help with your 2017 tax planning.
This calculator does its calculations based on the Detailed Canadian Income
Tax and RRSP Savings Calculator, so includes all the same changes. The purpose of the calculator is to show the big
difference in taxes payable on different types of investment income.
Even when the age credit and Old Age Security are clawed back, Canadian
dividends and capital gains result in the least taxes payable when
compared to other types of income such as foreign dividends and
interest.
This calculator has also been updated to include budget
changes regarding tax rates, personal tax credits and dividend tax credit rates,
as well as the QC changes regarding the personal tax credit rate. It's a
great calculator for comparing taxes for all provinces and territories, and for
multiple years - shows 2012 to 2017 side-by-side.
This calculator has been revised to include revisions from
the federal and Quebec 2017 budgets. Changes include the elimination of
the health contribution retroactive to 2016, revision of the tax rate for most
personal tax credits from 20% to 16%, and corresponding increase in the tax
credit amounts. It also includes revisions for the tax credit for persons
living alone, and with respect to age and retirement income. This calculator
is a great tool to help with your 2017 tax planning.
This calculator does its calculations based on the Quebec
Income Tax and RRSP Savings Calculator, so includes all the same changes. The purpose of the calculator is to show the big
difference in taxes payable on different types of investment income.
Even when the age credit and Old Age Security are clawed back, Canadian
dividends and capital gains result in the least taxes payable when
compared to other types of income such as foreign dividends and
interest.
Topics: Auto allowances; auto expenses; information of
Square users provided to CRA; the sharing economy; renouncing US citizenship;
Panama Papers - bank accounts in Canada being closed; a gifted home still may
qualify for Home Buyers' Tax Credit; Retiring partner payments - pensionable
earnings.
New caregiver and public transit tax credits; Reduced
electricity rates; OHIP+ - Drug coverage for age 24 and under starting Jan 1,
2018; Revisions to Ontario Student Assistance Program (OSAP); Increased tobacco
taxes; Revisions to Employer Health Tax (EHT); and more.
The NS 2017 Budget
announced enhancements for 2018 to the Basic Personal, Spousal, Eligible
Dependant and Age amounts. The threshold for the small business deduction
is increased to $500,000 effective January 1, 2017. Equipment used in the mining
and quarrying sector is exempt from motive fuel tax effective April 1, 2017.
A non-refundable tax credit based on
an amount of $5,000 is available for first-time home buyers. The credit
may also be available in
respect of a home acquired by an individual who is eligible for the
disability tax credit (DTC), or by an individual for the benefit of a
DTC-eligible relative. If you missed claiming this credit in the
year of purchase, you can file an adjustment to your tax return.
Attendant care costs
can be claimed for persons who are eligible for the disability amount, and in some situations for persons who do
not qualify for the disability amount. The Canada Revenue Agency guide
has been corrected regarding the limit on Ontario attendant care expenses, which
only applies if the taxpayer claimed the disability amount.
Don't miss claiming medical expenses. Private travel
medical insurance may qualify if nothing but eligible medical expenses are
covered by the plan. Home renovations may qualify if they enable a
disabled person to be more mobile within the dwelling. If the renovations
also qualify for the Home Accessibility or a Home Renovation Tax Credit, both
tax credits (or all three) can be claimed for the same expense.
Manitoba is phasing out the Tuition Fee Income Tax
Rebate and Advance, but will change legislation in order to continue the
Children's Arts and Cultural Activity Credit, Fitness Credit, and
Education Credit, all of which are dependent on the Federal credits which
are eliminated or being eliminated. Some other tax credits are being
extended.
The PEI 2017 Budget announced that the Basic Personal
Amount and the Spouse/Equivalent to Spouse Amounts would be increased by
2% for 2017, and that the Education Amount would be preserved for 2017.
When you're buying real estate, or are the agent for
the purchaser of real estate, get verification that will stand up in Court
that the vendor is a resident in Canada. Otherwise, you may be
assessed tax of 25% of the purchase price by Canada Revenue Agency if it
turns out that the vendor is a non-resident. A recent BC Supreme
Court case is an example of this.
Sometimes foreign tax withheld from foreign non-business
income is not completely recovered by the federal and provincial foreign tax
credits. In this case the taxpayer can claim a s. 20(12) deduction, which
doesn't seem to be calculated automatically by most income tax software.
We've now added an example of the calculation of the foreign tax credits and the
s. 20(12) deduction, showing how the calculation must be repeated a few times to
optimize the tax reduction.
This free tax service is available for those with
modest incomes - $30,000 for an individual, $40,000 for a couple (add
$2,500 for each dependant), and $35,000 for an individual with a dependant
(add $2,500 for each additional dependant), as long as the tax situation
is relatively simple.
Topics this month: Federal budget, of course, and
coming government review of tax strategies by private corporations;
Underground economy and how to protect yourself; CRA's new fingerprinting
policy and how it could create travel problems for accused (not
necessarily convicted) tax evaders.
Low- and middle-income taxpayers will get refunds for their
2016 health contributions, which is eliminated for net incomes up to
$134,095. The tax rate to be applied to personal tax credit amounts will
be reduced to 16% from 20% for 2017, but the net effect will be no change,
except for an increase in the basic personal amount tax credit. The Renovert tax
credit is extended to March 31, 2018. Business acquiring manufacturing or
processing equipment and computer equipment before April 1, 2019 will be
eligible for an additional capital cost allowance of 35%.
Everyone in business is faced at some point with the decision as to whether
an expense is capital or current in nature - in other words, whether the cost
should be capitalized or expensed. There are general guidelines that can
be followed to determine the answer. This article also deals with expense
and capital items which are used both for business and personal use.
If you rent out one or more rooms in your home, or if you own a rental
property, there are many expenses that can be deducted in calculating your net
rental income.
Even if you have no income, it may be to your advantage
to file a tax return to qualify for certain benefits or tax credits, and
to create RRSP or TFSA contribution room.
If you made a charitable donation for the first time in
2016, take advantage of the federal First-time Donor's Super Tax Credit,
which provides a 40% tax credit for donations of $200
or less, and a 54% credit for donations over $200 and up to $1,000.
This is a temporary tax credit, and 2017 will be the last taxation year it
is available.
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.
We initially reported that if you had sold your principal
residence in 2016 and purchased another one in the same year, if you ticked #1
on Schedule 3 of your tax return you would not be able to use 2016 as a year of
principal residence for the new property when you eventually sell it. CRA
has corrected this problem, indicating that if you tick #1 you will still be
able to use 2016 as a principal residence year for the new property, without
completing Form T2091(IND).
The SK 2017 Budget announced a PST increase; personal and
corporate income tax rate reductions; elimination of tuition and education tax
credits and employee tools tax credit; making PST taxable some previously exempt
items including children's clothing, restaurant meals and snack foods; enhanced
low-income tax credit; increased tobacco taxes, liquor mark-ups and corporation
capital tax; and more.
Some of the personal tax measures in the budget include
elimination of the public transit tax credit and the home relocation loans
deduction, replacing 3 different caregiver tax credits with a new Canada
Caregiver Credit, and implementing for RESPs and RDSPs the anti-avoidance rules
that are already in place for other registered accounts, including swap
transactions, prohibited investments, and non-qualified investments.
Billed-basis accounting for designated professionals is being eliminated.
Alcohol and tobacco taxes increase effective March 23, 2017. Check the
article for all tax measures.
The new Canada Caregiver Credit proposed by the Federal 2017
Budget would replace the existing Caregiver Tax Credit, Infirm Dependant Tax
Credit, and Family Caregiver Tax Credit, for 2017 and later years.
The Federal 2017 Budget proposes to amend the definition of a
taxi business to include ride-sharing services, so that these services will be
required to register for and collect GST/HST regardless of their annual income
level.
The Federal 2017
Budget proposes to extend the "swap transaction" rules to
Registered Disability Savings Plans (RDSPs) and Registered Education Savings
Plans (RESPs) effective for transactions occurring after Budget Day, March 22,
2017. For this purpose, investment income generated after March 22nd on
previously acquired investments will be considered to be a "transaction
occurring" after March 22, 2017. There are exceptions.
There are separate federal tax credits for volunteer
firefighters and search and rescue volunteers. Several provinces and one
territory also have a tax credit for volunteer firefighters and/or search and
rescue volunteers.
It is necessary to include all RRSP contributions made
in the first 60 days of the current year on Schedule 7 of the tax return for
the past tax year. If you didn't do this for your contributions made at
the beginning of 2016, you will have to file an adjustment to your 2015 tax
return. Make sure you do this for your 2017 contributions up to March
1st, even if you're not deducting them for 2016!
Whether you own foreign or Canadian ETFs, you should know the
tax consequences of the income from them, and how to calculate your adjusted
cost base (ACB). With Canadian ETFs, you need to know about reinvested
distributions and how they increase your ACB and thus reduce your capital gain
on sale.
Alberta's 2017 budget announced changes to the provincial
political contribution tax credit, although the amount will remain
unchanged. Very few tax changes were announced.
Interest expense incurred to earn investment income can be deducted as
carrying charges on your tax return. This could include mortgage,
loan, or line of credit interest, margin interest, or interest on your CSB
payroll savings plan.
Withdrawals from your RRSP from Jan 1 to Dec 31, 2016 will be
on a 2016 T4RSP, and must be reported on Schedule 7 of your 2016 tax return,
even though they don't affect your income.
If you made repayments to your RRSP for the HBP or LLP from
Jan 1/16 to Mar 1/17, make sure you report them properly on your tax return in
order to not lose RRSP contribution/deduction room.
We've published the table of 2017 corporate income tax
rates. So far, 2017 provincial budgets have brought corporate tax rate
changes for BC and New Brunswick. Most provincial budgets have not yet
been tabled, so further changes could be coming. Some rates changed
effective January 1, 2017 based on last year's budgets.
Unless it is used to generate income, a cottage or second
home is normally considered personal-use property. It's important to track
the adjusted cost base (ACB) of your principal residence and your cottage, as the
principal residence exemption could apply to either one. Even if you don't
own a second property, the ACB of your home needs to be tracked, because its
status as a principal residence could change in the future.
Non-residents of Canada receiving income from Canada, such as
OAS, CPP, or other income, may be able to reduce the withholding tax on that
income by filing a NR5 application, and may recover the withholding tax by
filing an elective tax return. Depending on their country of residence,
recipients of OAS must file a T1136 OAS Return of Income annually in order to
continue to receive their OAS payments.
Topics this month: Principal residence exemption, fraud
refund scam, mutual fund taxation, investment management fees, Eservices at CRA.
If you own a principal residence you'll definitely want to view this video!
We've revised the 2017 tables of non-refundable tax credits
to reflect what the education and textbook tax credits will be for 2017 if the
amounts on the 2017 TD1 forms are all correct. These credits are cancelled
federally for 2017, and most provinces/territories will have to change their
legislation to keep them. BC is extending the education tax credit for
2017, and NWT is retaining the education tax credit (no end date was specified).
Deductions from income save tax at your marginal tax
rate, while most non-refundable tax credits are at the lowest personal
income tax rate, with some exceptions. See our information on many
of the deductions and refundable and non-refundable tax credits.
The Nunavut 2017 Budget documents did not mention any
tax changes. However, there is no Bill available yet to reflect any
changes resulting from the Budget, and it is possible they may enact
changes in order to keep the education tax credit.
Bill 17 for the NT 2017 Budget includes elimination of
the Overseas Employment Tax Credit (OETC), and retention of the Education
Tax Credit. Tobacco taxes were increased.
Do you have a buildup of RRSP contribution room because
you've been unable to make regular contributions to your RRSP, or just because
you're a procrastinator? If you're considering borrowing to contribute to
an RRSP, read our article first, then check out the Borrow for RRSPs
Calculator.
Our table shows what a huge
difference it makes to start contributing early to RRSPs or TFSAs.
March 1, 2017 is the deadline for contributing to an RRSP for the 2016 tax
year.
The Rule of 72 is very simple - divide 72 by your rate
of return to find out how many years it would take to double your
investment. At a 9% rate of return, it would take 8 years. Our
calculator lets you input a rate to determine the
number of years to double your investment, or you can input the number of years to determine the
approximate rate required to double your investment.
If you have earned income in 2017, this generates RRSP contribution room for 2018. If you are turning 71 in 2017, you can only use this room to contribute to the RRSP of a younger spouse or by making an excess contribution to your own RRSP in 2017, because your RRSP must be converted to a RRIF by the end of the year. The excess contribution should be done in December to minimize the penalty. We're putting this out there now so you can plan ahead.
There are several ways of splitting income, either with a spouse or
child. Two methods of splitting income with a spouse, pension
splitting and transfer of Canadian dividends to a spouse, are done only
on the tax return.
Do you own foreign property with a cost exceeding $100,000
Canadian at any time 2016? If so, you (Canadian resident
individual, corporation, certain trusts or partnerships) will have to file the
T1135 foreign income verification report. The penalties for not filing are
onerous. Types of foreign property include securities, real estate, life
insurance policies, and more. Learn what is included and how to complete
the T1135. If your foreign real estate had additions/renovations done that
were capital in nature, did this increase the adjusted cost base to over
$100,000 Canadian?
The maximum
lifetime capital gains exemption (LCGE) for the sale of qualified small business
corporation shares is $835,714 for 2017. For qualified farming or fishing
property the maximum is $1 million. Planning ahead is absolutely necessary
if you're hoping to claim this exemption in the future!
You can transfer shares from a non-registered account
to your RRSP in order to make your contribution. If you transfer
shares on which there is a loss, the loss will not be deductible. If
you transfer shares on which there is a gain, you will have a taxable
capital gain.
The budget announced major changes to MSP, a reduction
in the small business corporate income tax rate, extension to the
education tax credit for 2017, reduction of the PST rate on electricity,
and many other changes.
Effective January 1, 2018, the premium
rates for those with adjusted family net income of $120,000 and less will be
reduced by 50%, and the threshold for elimination of premiums is increased from
$24,000 to $26,000. However, it will be
necessary to apply for the reduction, for those who have
not already applied for premium assistance.
Usually, a person files a tax return for the province in which they are residing on
December 31 of the tax year, even if they worked in another province.
The Canadian Tax Calculator now includes the Family
Caregiver Amount for infirm dependent minor children and spouses, the
Infirm Dependant Amount for age 18+, and the Caregiver Amount for either
parents/grandparents living with you, or dependent infirm adult relatives
living with you.
Starting with the 2016 taxation year, the sale of a
principal residence must be reported on the tax return, even if it is 100%
eligible for the principal residence. When there is more than one
owner, each will report their share of the sale.
The New Brunswick small business corporate income tax rate
will be reduced from 3.5% to 3.0% effective April 1, 2017. There were no
personal income tax changes announced.
NetFile will be open for transmissions on February 20,
2017 until January 19, 2018 for filing of 2013 to 2016 personal income tax
returns. EFile is also available starting February 20, 2017.
You may try to keep your withholding tax rate lower by
taking a series of lump sum withdrawals from your RRSP or RRIF, instead of
withdrawing one larger amount. However, you may not be successful in
keeping the withholding tax rate lower.
The investment return calculator will provide you the %
return and the annualized % return on an investment account, a portfolio, or a
single investment. It will now retain data for you on your computer so you
don't have to re-enter everything the next time you use it.
Expenses that are paid to earn employment income are sometimes deductible,
including any GST/HST that was paid on them. This can only be done if your
employer requires you to pay the expenses, and either you didn't receive
reimbursement for the expenses, or the amount you did receive is included in
your income. Form T2200 must be completed by your employer in order to
claim employment expenses.
From March 31 to November 30, 2016, Canada's interest-bearing
debt increased by $31.95 billion, almost as much as it increased in
the 10 years ending March 31, 2016. Unfortunately, it appears that Justin
Trudeau's Liberal government is taking us into a spiral of debt, as was done by
Pierre Trudeau in the 1970's and 1980's. We are now paying $2
billion per month in interest, at historically low interest rates!
Some Canadians may have to file a US estate tax return and
possibly pay US estate tax, depending on US assets owned at the time of death, including real estate, stocks, etc.
The table of factors for 2017 maximum withdrawals from
federally-regulated plans is available on the website of the Office of
Superintendent of Financial Institutions (OSFI).
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,
depending on their net income. 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.
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.
It was an exceptional year for the S&P/TSX, and a good
year for the S&P 500. However, the S&P 500 return in Canadian
dollars was less than in US dollars because the Canadian dollar increased in
value against the US dollar. See the historical returns for 1, 5, 10, 20,
and 50 years, and how much $1,000 invested at the beginning of the period in
various investment types are worth at the end of the period. Over the past
10 years one would be losing money after inflation by investing in
Canadian 3-month T-bills or Canadian government 1-3 year bonds.
There is no withdrawal necessary in the year a RRIF is set up, but there are minimum amounts that must be withdrawn
annually starting in the year after setup.
The prescribed factor for your 2017 withdrawal from a
RRIF will depend on your age at the beginning of 2017. This is your age,
or the age of a younger spouse, on December 31st, 2016.
Reinvested distributions are not paid in cash, are
taxable, but also increase your adjusted cost base so that your capital
gain is less when you sell. These distributions may not be
identified on your T3 - how to find the information you need!
The BC home owner grant threshold is being increased from
$1.2 million to $1.6 million for 2017 property tax payments. The grant
amount is $570 ($845 for seniors) for residents of the CRD, GVRD and FVRD, and
$770 ($1,045 for seniors) for residents of other areas. A low income grant
supplement can reduce property taxes further for seniors, people with
disabilities, and surviving spouses of veterans who received war veterans
allowance, if adjusted net income is $32,000 or less.
The RRSP vs Mortgage
(or other loan) calculator, which now uses 2017 tax rates,
helps you to decide whether to increase your
monthly loan payment, or contribute the extra
monthly amount to an RRSP. When in doubt, pay down your debt!
See our articles on filing your tax return and how this
can be done, as well as articles about different types of taxable income,
deductions and tax credits, and many other topics.
The 2016 tax return forms are available on the Canada Revenue
Agency website. Software packages for filing 2016 tax returns are also
available, although they may have further updates to come. If you are
using a professional tax preparer, make sure you provide them with all the
necessary information as early as possible.
Before borrowing, you should read our article. Novice
investors should not borrow to invest. Borrowing to invest can convert
regular income into tax-efficient dividend income and capital gains.
Most 2016 personal income tax returns have a due date
of May 1, 2017, because April 30th falls on a Sunday. Self-employed individuals have until June
15th to file
their personal tax returns, but any amounts owing must still be paid by
May 1st.
All income and
expenses must be reported on your tax return in Canadian dollars, converted
either at the transaction date exchange rate, or the average exchange rate for
the year. The average US exchange rate for 2016 is 1.32480640.
If you want to make an in-kind contribution of shares to your
RRSP, TFSA or another registered account, make sure they are not shares on which
you have a loss, because the loss will not be deductible. Also be careful
if you are going to sell them and then repurchase them in your registered
account - read our article!
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