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Before making a major financial decision you
should consult a qualified professional.
All 2018 factors for the Quebec tax calculator have
been confirmed, as have many of the 2019 factors. This calculator is
a great tax planning and financial planning tool, but will not actually
file your tax return for you.
This calculator will 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 month's topics include: 3rd party contributions to
TFSAs (such as employer contributions); expenses after a business ceases;
TOSI - reasonable return; small business deduction passive investment
income clawback; and changes to Canada Business Corporations Act re
tracking of corporate ownership information.
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, even
if the Old Age Security is clawed back, with the clawback included as tax.
The rates for 2019 maximum withdrawals from
federally-regulated LIFs and LRIFs are now available on the website of the
Office of the Superintendent of Financial Institutions.
Employment income is included on a T4 for the year in which
it is received, not earned. If a payment is made in
January 2019 for wages earned in December 2018, this amount will be reported on the
2019 T4, not on the 2018 T4 (see exception re employee trusts).
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 3 cents, to 58 cents per km for the first 5,000 km and
52 cents per km for each
additional km. For the Territories, the rates are also increased by 3
cents, to 62 cents per km for the first 5,000 km and 56 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 2019 by 2 cents, to 28 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 2019 by 2
cents, to 25 cents per kilometre. The standby charge taxable benefit
factors for automobiles remain unchanged.
The 2019 expense
limitations for passenger vehicles for interest expense, monthly lease costs,
and capital cost allowance (CCA) will remain unchanged from 2018.
The Alberta Finance Ministry indicated on Dec 19th that the 2018
dividend tax credit rate for non-eligible dividends will be 2.16% of the taxable
dividend. No mention was made of the 2019 rate. The 2018 and 2019
tables of marginal tax rates have been revised for this change.
The 2018 tax returns for Manitoba, New Brunswick, Ontario and
Saskatchewan will include a refundable tax credit for residents of those
provinces, with an additional amount for those living in small and rural
communities. Saskatchewan will receive the highest credit amount, up to
$669.90 for a family of 4 living in a rural community. This article also
includes links to climate plans and/or incentives of other provinces and
territories.
This month's topics include: faster CCA write-offs;
What is manufacturing and processing equipment; Corporate passive
investment income and the small business deduction; CRA audits - liquor
sales; 2019 indexation; Carbon tax and climate incentive payments.
Haven't filed your 2008 tax return yet? Taxpayers are running out of time to file requests under the taxpayer relief provisions for the
2008 tax year and any reporting period that ended in the 2008 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 a
tax year prior to 2008, penalties and interest that have accumulated from
2008
to 2018 could still be reduced as a result of a 2018 request for leniency.
The TD1 forms for 2019 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.
The prescribed factor for your 2019 withdrawal from a
RRIF will depend on your age at the beginning of 2019. This is your age,
or the age of a younger spouse, on December 31st, 2018. When your
RRSP is converted to a RRIF, you can elect to use the age of a younger
spouse to calculate your minimum withdrawals, as long as this election is
done prior to receiving any payments out of the RRIF.
If you turned 71 this year, your RRSP must be converted to a RRIF, or used to purchase an annuity, by December 31st, but if you haven't done
this already your financial institution will probably be automatically converting it soon. 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.
The last trading date in 2018 for Canadian and US publicly
traded stocks is Thursday, December 27th. Stocks purchased or
sold after this date will settle in 2019, so any capital gains or losses
on sale will apply to the 2019 tax year.
The purpose of these calculators is to show the big
difference in taxes payable on different types of investment income, for
taxpayers of any age.
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.
The Quebec investment income tax calculator will hopefully be available soon.
This detailed income tax calculator includes the most common deductions and tax
credits, and pension splitting. This version has a separate tab
(page) for Dependants, and we've added the ability to transfer a disability
credit from a dependant. 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 Fall Economic Statement has no personal income tax
changes. The main business tax provision is legislative changes that
allow full immediate write-offs for purchases after November 20, 2018 of
machinery and equipment used in the manufacturing and processing of goods, and
of specified clean energy equipment.
A new tax credit was announced for low-income workers
residing in Ontario, effective for the 2019 and subsequent taxation
years, providing a tax reduction of up to $850 for an individual. The
non-eligible dividend tax credit rate was revised. Changes
are also proposed for the provincial small business deduction, and tax on split
income (TOSI).
Compare taxes on both types of Canadian dividends, capital
gains, and other income with this simple calculator which shows every province
and territory for 2014 to 2019. Also shows the marginal tax rates for
different types of income for the year selected, again for every province and
territory.
The maximum pensionable earnings for 2019 will be $57,400,
and the rate will be increased to 5.1%, including the 0.15% first additional
contribution for the enhanced CPP. The additional contributions will be deductible from income.
Bill C-86 was tabled on October 29, 2018 by the federal
government. It includes many provisions, including those re
charities and non-partisan political activities, allowing CRA to calculate
the new Canada Workers Benefit if a tax filer has not claimed it,
extending the income tax reassessment period in a few different
situations, and many other measures.
We've published our 2018/2019 tax rate tables, which show the combined
federal and provincial/territorial tax rates for capital gains, both types of
Canadian dividends and other income. There is a possibility
things could change on November 21st with the federal fall economic
update, and again when 2019 budgets are
tabled. The indexation factors and amounts have not yet been
confirmed to Canada Revenue Agency or to Revenue Quebec.
We've updated the table of dividend tax credit rates to
include 2019. Since the gross-up rate is reduced to 15% in 2019 from
16% in 2018, the dividend tax rate is changed for many provinces.
Rates could still change when 2019 budgets are tabled.
We've updated the table of dividend tax credit rates to
include 2019. The only changes are BC and Quebec. This could
change when 2019 budgets are tabled.
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. Are you a high income earning earner
about to apply next year for your OAS, with a reduced income? Plan
ahead!
When a withdrawal is made from a TFSA, the withdrawal amount
is added back to your contribution room in the following year. If
you're considering a withdrawal in the next several months, do it before Dec
31st so it increases your contribution room in January.
We've published the tables of non-refundable tax credits for 2019 for
Canada and all provinces and territories except Quebec. The
indexation factors and tax credit amounts have not yet been confirmed to Canada Revenue Agency amounts.
This month's topics include a multi-million dollar
shareholder taxable benefit; eligible child care expenses; 2019 changes to
employment insurance, 2019 increases to Canada Pension Plan premiums; and
Independent contractor vs employee.
Investing is a life-long pursuit that will help you
achieve financial independence. We
think that the best way to start investing is through buying ETFs.
By converting some of your RRSP to a
RRIF in the year you turn 65, you can take advantage of the pension
income tax credit and pension
income splitting with your spouse. If your financial institution says that
you can only convert your entire RRSP to a RRIF, not just a portion of
it, question this!
Topics this month: Donation of wine - valuation;
Donation of life insurance - different tax consequences depending on how
it's done; Tax on split income - business; Airbnb - hotel tax; GST/HST
coming for online advertising; Voluntary disclosures program - number of
applications; Working while on employment insurance.
On September 17th, the federal government posted
Regulatory and Legislative Proposals Relating to the Taxation of Cannabis,
and Explanatory Notes. This relates to excise duties on cannabis.
The Northern Residents Deduction can now be entered in the
detailed tax calculator. The
residency portion provides a deduction of up to $8,030 per year. The
calculator does not check to ensure that the limit for this deduction isn't
exceeded - you'll still have to use the CRA form T2222 to calculate your
deduction.
Effective January 1, 2019, employers with total annual
payroll exceeding $500,000 will have to pay the new Employer Health Tax.
Annual payroll includes bonuses, vacation pay, taxable benefits and other
taxable payments to employees. Charities and non-profits will pay EHT when total
annual payroll exceeds $1,500,000, and this threshold will be applied to each
location of the organization with BC payroll.
If you plan to make a spousal RRSP contribution online, BE
CAREFUL! You probably have to be logged into your 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 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.
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.
Federal draft legislation would allow charities to
pursue their charitable purposes by engaging in non-partisan political
activities and in the development of public policy. These changes
also affect amateur athletic associations.
The 2019 employee EI rate is reduced to 1.62% from the
2018 rate of 1.66%. The employer rate is 2.268%, down from
2.324%. The maximum insurable earnings (MIE) is increased to $53,100
from the 2018 rate of $51,700. The resulting maximum annual contribution
per employee for 2019 is increased to $860.22 from the 2018 maximum of
$858.22, an increase of 0.2%.
Because Quebec has their own parental insurance plan (QPIP),
they pay a lower EI rate than the rest of Canada. Their 2019 employee EI rate is 1.25%, down
from 1.30% in 2018. Employers will pay 1.75%, down from 1.82% in
2018. The employee maximum will be $663.75, down 1.24% from
$672.10. Quebec has the same maximum insurable earnings (MIE) as the
rest of Canada.
Most fixed term investments are not cashable or
redeemable except on the death of the owner, and sometimes in the case of
financial hardship. Our article refers to investments in a
registered account, but the same would apply in a non-registered
account. To be sure, terms and conditions of the investment should
be reviewed before purchase, if this is a concern.
The Northern Residents Deduction is a deduction from income, not
a tax credit, so tax is saved at your marginal
tax rate. There are two parts to the northern residents deduction - the
residency deduction, and the travel deduction. If you are living in a prescribed zone for an entire year, the
residency portion provides a deduction of up to $8,030.
This video discusses the CRA vehicle expenses project;
non-partisan political activities of charities; GST/HST debt collection
(yes they can recover the money you used to pay off your mortgage);
royalties and active business income; "reasonable" business
expenses; and US travel issues around cannabis.
Benefit and tax credit programs for people living in
Ontario - access an online tool to find information about benefit programs you may be eligible for.
It takes only a few minutes, and may help you.
When the annuitant of an RRSP or RRIF dies, the fair
market value of the account at death is included in the income of the
deceased for the year of death. When these accounts have named
beneficiaries, no tax is withheld when the account is paid to the
beneficiary, so the estate should be planned to make sure funds are
available besides those accounts, to pay any tax liability. However,
the named beneficiaries can be held liable for taxes unpaid by the estate.
A U.S. federal estate tax return must be filed if a deceased
Canadian resident who is not an American citizen owned U.S.-situated assets
exceeding $60,000 US in fair market
value at the time of death, including US stocks held in a Canadian brokerage,
even if held in RRSPs or other registered accounts. However, the US
Tax Cuts and Jobs Act (TCJA) amended the basic
exclusion so that if your total worldwide estate in
2018 is
less than $11.18 million US, you will probably not have to pay any US estate
tax.
This very simple calculator will give you a rough idea
of how much, if any, you may have to pay in US federal estate tax.
The calculator is for Canadian residents who are not US citizens.
Read our article on US Federal Estate Tax prior to using the calculator.
There are many tax issues for students and/or their
parents, such as eligibility for tuition, education and student loan
interest tax credits (some of which have been eliminated), private school tuition fees, deducting moving
expenses, and child care expenses.
Changes were made to the VDP effective March 1, 2018. A new "Limited
Program" now applies to taxpayers who have intentionally avoided their tax
obligations.
When
a tax return which includes the reporting of self-employed earnings is more than
4 years late in being filed, the contributions required on those earnings are
deemed to be zero, and future benefits will be reduced related to those
earnings. There can be penalties payable for failure to
file a return of self-employed earnings, as well as for late tax returns.
Employers and employees should be aware of minimum wage rates
and current employment standards, including those regarding vacation and
statutory holiday pay, rest periods, parental leave, and many other standards.
Most provinces have had a minimum wage rate increase already in 2018.
Alberta, Manitoba and Saskatchewan will have increases effective October 1,
2018.
This calculator will determine how much you need to
invest today to achieve a desired amount in the future, and how much you
could have in the future based on what you have invested today. It
will also determine the effective interest rate, and how long it would
take you to achieve a desired amount in the future based on other factors.
The Aug 2018 10-minute video talks about extended
reassessment periods; individual income tax refunds beyond 10 years;
Employment scam related to collections of accounts receivable; Corporate
owned life insurance, capital dividend account, and ACB of the life
insurance; Time limit for input tax credits; Sales taxes may now apply on
sales to U.S. residents; Ontario carbon market cap-and-trade; BC
government ending hidden ownership of real estate.
On July 27 2018 the federal government released draft
legislation related to sales and excise taxes and related to income tax,
including extended reassessment periods. Canadians are invited to comment by September 10 2018.
On June 22, 2018 the Government of Canada released for
comment a consultation paper. The aim of the consultation is to
modernize the unclaimed balances regime and provide proposals for an
unclaimed pension balances framework. Written comments should be
sent by email, by August 21, 2018.
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. Note that capital gains can reduce
the GIS payable even if they are offset by capital losses carried forward.
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.
You can transfer shares from a non-registered account
to a registered account such as an RRSP. However, 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.
Everyone in business, or with a rental property, 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, but in some cases the decision is left to
the courts.
AISH provides financial and health benefits for eligible
Albertans with a permanent medical condition that prevents them from earning a
living. Legislation enacted June 11, 2018 allows persons with disabilities
to be the beneficiary of a trust without affecting their eligibility for the
AISH program.
Lots of variety this month: Bill C-74 passed including TOSI
and passive investment changes; Is a director liable for corp income taxes on
liquidation?; Business vs personal expenses; Issues re meals and entertainment
expenses; Retiring partner payments not pensionable; IRS launches non-resident
projects.
Bill C-74 received Royal Assent on June 21, 2018. It
included the provisions for the Tax on Split Income (TOSI) changes and CCPC
passive investment changes, as well as the new Canada Workers' Benefit (formerly
Working Income Tax Benefit or WITB), indexation of the Canada Child Benefit,
small business tax rate reduction and other provisions.
See our Business page for articles for self-employed people
and incorporated businesses - taxes, expenses, employees, payroll, keeping
records, whether to incorporate, and many other topics.
Canada Revenue Agency has withdrawn the payroll tables that
were revised for the proposed tax changes in the Ontario 2018 Budget. The
government was replaced, and those tax changes were never enacted and will not
happen. We'll have to wait for a budget from the new government to see
what changes will be made. If you use p/r software and haven't received an
update you'll hopefully receive it soon.
How much will you be able to withdraw from your investments
each year until they are reduced to zero? Our very simple calculator shows annual
withdrawal amounts at varying average rates of return (which you can change),
over several time periods. There is no allowance for inflation, and the
withdrawal amounts are pre-tax. The withdrawals will not be 100% taxable
of course - they will consist of capital gains, dividends, perhaps interest, and
withdrawals of capital.
The CPP Retirement Pension Plan calculation allows for
increased pension for those who delay starting it until after age 65. If
you wait till age 70 but don't work past age 65, this won't reduce your pension
amount because those years of earnings can be dropped out.
This calculator, updated for 2018 budgets but
NOT including Ontario 2018 budget tax changes, 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.
This calculator has been updated for 2018 budget changes, but
NOT including Ontario 2018 budget tax changes. It may be able to help you decide
whether RRSPs or TFSAs are better for you. If you're in the lowest tax
bracket, go with TFSAs!
June video topics: Employer provided social events may
result in taxable benefits to employees; Return of capital from funds purchased
with borrowed money; CRA checking class 10 vehicle additions; Taxation of CPP
death benefit / automatic upload to tax returns; Gifting receipts re golf
tournaments; New information required on donation receipts; RRSP
overcontributions.
The RRSP vs Mortgage
(or other loan) calculator, which has been updated for 2018 budgets (except
Ontario tax changes),
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!
The CPP Retirement Pension Calculator has had a
software update, and will now retain your data. The main purpose of the calculator is to help you see the effect of
starting to receive your pension at different ages, not to provide an
exact amount of your pension.
The marginal tax rates for 2018 for non-eligible
dividends have been revised to reflect the change from the Saskatchewan
2018 Budget. The Detailed Canadian Tax Calculator, Basic Tax Calculator and
Investment Income Tax Calculator have all been revised to reflect the
change.
The Basic Tax Calculator, updated for 2018 budgets
EXCEPT the tax changes from Ontario 2018 Budget, is a very simple
calculator which requires little input, but will show you the total taxes,
as well as the marginal tax rates for all types of income, for all
provinces and territories.
The Detailed Canadian Income Tax and RRSP Savings
Calculator has been updated for all provincial budgets EXCEPT for the tax
changes from the Ontario 2018 Budget, since no bill has yet been tabled
for the budget, and an Ontario provincial election will be held early in
June.
These calculators, for all provinces and territories, 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. The calculators have been updated for all budget changes
EXCEPT for the tax changes from the Ontario 2018 Budget.
Interest expense incurred to earn investment income can be deducted as carrying charges on your tax return. If there is a return of capital from those investments, this may make some of the interest expense non-deductible!
Now that your 2017 tax return is done, make sure your
tax records are organized, and plan to accumulate any tax-related
documents in one place (perhaps electronically), to make things easy when
the 2018 tax return has to be filed. If your tax situation is
getting more complicated, now is the time to find a tax professional to
work with you, not next tax season when they'll all be extremely busy!
The "one plus" rule allows a principal
residence exemption to be claimed for both the sold home and the new home
at the time a new home is acquired. See our example of the
calculation for when 2 homes are owned at the same time for a number of
years.
So far there are no changes from the 2017 sales tax
rates, except for the reduction of the rate applied to taxable purchases
of electricity in BC, from 7% to 3.5%. There is no PST in BC on
residential purchases of electricity.
If you are an employee, you should be paying the
premiums on your disability insurance to ensure the income will be
tax-free. If you are self-employed, it's extremely important to buy
disability insurance to ensure you'll have income in the case of a medical
event which results in you being unable to work for a period of time.
Browse our topics for businesses, including income tax
issues, expenses, employees and payroll/payroll taxes. Learn about the
small business deduction, capital gains exemption, foreign income and asset
reporting, vehicle costs and taxable benefits, capital vs expense, and many
other topics.
Canada Revenue Agency (CRA) provides free videos and webinars to assist individuals, families, businesses and charities in learning about government services and income tax.
Know what deductions, refundable and non-refundable tax
credits are available, and information about medical expenses. Some
tax credits can be transferred between spouses. Information about
Registered Disability Savings Plans (RDSPs), government benefits, and
unlocking locked-in pension plans.
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.
May video topics: Making payment arrangements with CRA;
Incentives must be included in business income; End of U.S. Offshore Voluntary
Disclosure Program (OVDP); Problems with using legacy software; Amended T4s may
not be assessed quickly; and Allowable business investment loss (ABIL).
Be aware of what can be claimed as eligible medical expenses,
including transportation costs where the taxpayer must travel at least 40 km to
required medical services, premiums paid to a private health services plan, such
as travel medical insurance, provincial prescription drug plan premiums, and
many other expenses.
The Quebec 2018 table of marginal tax rates has been revised
to reflect the changes in the dividend tax credit rates for both eligible and
non-eligible dividends, for dividends received after March 27, 2018, as per the
Quebec 2018 Budget.
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 limit on Federal and Ontario attendant care
expenses
only applies if the taxpayer claimed the disability amount.
For taxpayers who record gains and losses from call and
put options as capital gains or losses (this isn't the case for everyone),
the timing is a little trickier for options which have been sold, as
opposed to options which have been purchased. See our table which
explains how to do things.
There are no provincial tax rate increases in this budget,
and no personal income tax changes. A couple of PST exemptions are being
discontinued - exemption for Energy Star appliances, and exemption for used
light vehicles.
The PEI budget provides for a $500 increase in the basic
personal amount for 2018, and a further $500 increase for 2019, with pro-rata
increase for the spousal and equivalent-to-spouse amounts. The provincial
portion of HST will be rebated on the first block of residential electricity
and on lower emitting heat sources. The small business corporate tax rate
will be reduced from 4.5% to 4% this year, with a corresponding adjustment to
the non-eligible dividend tax credit. There is a new Small Business Investment
Grant.
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, and which line number to use when
adjusting your tax return with CRA.
If your business is incorporated, you must file a
separate corporate income tax return. If not, the business income is
included on specific forms in your personal income tax return. A
professional accountant can help to ensure that you claim all allowable
expenses.
Everyone in business, or with a rental property, 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.
This month's 10 minute video discusses a malicious
prosecution by CRA; Passive income provisions of the 2018 budget, related to the
small business deduction; Tax on split income; and US transition tax and
Canadian Corporations.
Withdrawals from your RRSP from Jan 1 to Dec 31, 2017 for the
HBP or LLP will be
on a 2017 T4RSP, and must be reported on Schedule 7 of your 2017 tax return,
even though they don't affect your income.
If you made repayments to your RRSP for the HBP or LLP from
Jan 1/17 to Mar 1/18, make sure you report them properly on your tax return in
order to not lose RRSP contribution/deduction room.
Even if you have low or no income resulting in no
income tax payable, it may be to your advantage
to file a tax return to qualify for certain benefits or to receive refundable tax credits, and
to create RRSP or TFSA contribution room.
The budget proposes to eliminate the personal income tax
surtax, and revise the tax brackets and rates, as well as increase the tax rates
for the portion of donations in excess of $200.
Bill C-74 was tabled in the House of Commons on March 27,
2018, including legislative provisions for the Canada Workers Benefit,
indexation of the Canada Child benefit, reduction of the small business tax
rate, income sprinkling, passive investment income, and other measures.
Quebec's budget introduces a new first-time home buyer
credit. The small business tax rate will be reduced each year until it is
4% in 2021. Many personal and business tax credits are enhanced.
Eligible and non-eligible dividend tax credits are reduced immediately, and
again each year for a few years.
Not many tax changes in this budget - a new Search and Rescue
Volunteer Tax Credit will be available, the retail sales tax on auto insurance
will be reduced, and the exemption threshold for the provincial payroll tax is
being increased, with all these changes effective in 2019.
There were no major tax changes announced in Alberta's 2018
Budget. A new Interactive Digital Media Tax Credit will take effect April
1, 2018. The Alberta Investor Tax Credit and Capital Investment Tax Credit
are extended to 2021-22. The budget also details how much excise tax will
be collected for them on cannabis sales.
The interest rate for these loans must be at least equal to a
prescribed rate set by Canada Revenue Agency at the time the loan is created,
unless the rate that would have been agreed upon between parties dealing with
each other at arm's length would have been lower. This interest rate is
then used throughout the loan. The prescribed rate for these
loans is increasing from 1% to 2% effective April 1, 2018.
The Nova Scotia government is removing the $10,000 limit on
medical expenses eligible for the medical expense tax credit for other dependent
relatives, making it consistent with the Federal tax credit. They are
creating a new Innovation Equity Tax Credit starting in 2019. The budget
also details how much excise tax will be collected for them on cannabis
sales.
If you have not contributed to an RRSP the maximum that you
are allowed to contribute, then you have deduction room (or contribution room)
carried forward. When you have made RRSP contributions but have chosen not
to claim all of those contributions on your current year tax return, you have
unused RRSP contributions carried forward.
The Basic Personal Amount is increased for 2019/2020, and the
Small Business Deduction (SBD) limit is increased effective January 1,
2019. A carbon tax will be in effect starting Sep 1, 2018. Tobacco
tax increases effective midnight March 12th, 2018. A child care centre
development tax credit is introduced for private corporations. Other tax
measures were also announced.
Employed tradespersons and employed apprentice mechanics can
deduct a maximum of $500 when they are required to purchase their own tools as a
condition of their employment.
There are several tax credits that can be shared between
spouses, or claimed by either spouse. To ensure the maximum credit for
medical expenses, they should be combined and claimed on the tax return
of one spouse. Donations should also be combined and claimed by one
spouse. Which spouse? That depends on a few factors - see the article.
Child care costs are normally deductible
by the spouse with the lower net income before deducting the child care costs.
There are weekly and annual limits for child care costs deducted, as well as a
limit based on your annual income.
The age amount tax credit is a non-refundable credit, and is
reduced when income exceeds a certain threshold, both federally and
provincially. Capital gains can cause income to exceed the threshold, and
offsetting capital losses carried forward won't help with this.
An employee can complete the CPT30 election to stop paying CPP
contributions on the date that they turn 65. This election applies to both
employment and self-employment earnings. If the person only has
self-employment earnings the form is not needed - the election is done later, on
the tax return for that year.
Do you own rental property? See what expenses can be deducted, and what
happens if you move into your rental property, or start renting out your
principal residence. Is your rental income considered property income or
business income? Why does it matter?
Yukon tabled their 2018 Budget on March 1st with no tax changes. Upcoming
budgets include Manitoba on Mar 12, Nova Scotia on Mar 20, Ontario on Mar 28
and Saskatchewan on Apr 10.
By 1980, the oil companies knew there was going to be large production of oil
from the oil sands. Since 1980, 23 refineries have been shut down in
Canada.
The budget proposes to rename the Working Income Tax
Benefit to the Canada Workers Benefit, and enhance the benefit, starting
in 2019. Tax measures include a reduction to the business limit for
the small business deduction, based on the investment income earned by a
Canadian Controlled Private Corporation (CCPC), and a revision to the
Refundable Dividend Tax on Hand (RDTOH) system of refundable taxes.
Tobacco excise taxes increase immediately, and legislation for cannabis
excise tax is introduced.
The small business deduction provides a reduced rate of
tax for CCPCs, for their active business income up to the business
limit. The business limit is reduced based on taxable capital, and
starting in 2019 will be reduced based on investment income earned in a
CCPC, as per the 2018 federal budget proposal.
We've prepared a table to compare the newly proposed 2019 Canada
Workers Benefit to the existing 2018 Working Income Tax Benefit, for most
provinces and territories.
The detailed Canadian Tax Calculator has been updated
in relation to Caregiver credits, to simplify things, and has been updated
for the change in the BC Caregiver credits for 2018. More Tax
Calculator changes may be required after the federal budget on Feb 27th.
Lots of info in this month's 10 minute video!
Education/textbook credits; Home accessibility credit; Caregiver credits;
Principal residence dispositions; Income-splitting loans; Salaries to
family; Owner/manager employment expenses; and US estate tax. Lots to
learn!
Deductions are usually better than a tax credit,
because they are reducing your income, so your tax is reduced at your
marginal tax rate, not the lowest tax rate. Available deductions
include child care expenses, interest expense, moving expenses, and other
deductions.
The T3 you receive for your income from an ETF may have an
amount in box 21 for capital gains. It is possible that all or part of
this amount was not actually paid to you, but was reinvested. You have to increase your adjusted cost base
(ACB) for the amount of reinvested
distributions. This will reduce your capital gain when you eventually
dispose of the investment. You may have to do some searching to determine
the amount of the ACB increase, although at least a couple of brokerages have
done things to make this easier.
Learn how to properly track your adjusted cost base (ACB) and report income depending on the type of investment - shares,
bonds, mutual funds, income trusts, ETFs, call and put options and more.
Discussion of return of capital, negative ACB and reinvested distributions
from ETFs.
If the Alberta-BC trade dispute results in a
Constitutional fight before the Courts, it could easily go on for a
decade. The only way for this to be resolved without an extended court
battle is by agreement between the provinces.
MSP is to be eliminated effective Jan 1, 2020, and a
new Employer Health Tax will be created starting Jan 1, 2019. New
Child Care Fee Reduction program, to be followed by Affordable Child Care
Benefit. A new BC Caregiver Credit replaces the Infirm Dependant and
In-home Care of Adult Relative tax credits, starting in 2018.
Increases to property transfer taxes, foreign buyers tax, school tax, and
some provincial sales taxes. Measures regarding users providing
accommodation via such websites as Airbnb.ca. See the article for
more information.
There are several ways of splitting income, either with a spouse or
child. Some methods of splitting income with a spouse are done only
on the tax return, such as pension splitting.
Any oil that is exported from North America must then be replaced by
importing oil back
into North America. It would reduce the chance of a major tanker oil spill
if oil was not exported by tanker in the first place. Conclusion: Canada and the provinces need to tax imports and exports of oil shipped by tankers in order to build a reserve fund of at least $20 billion, so that the taxpayers don't end up paying for a major spill.
Many people don't realize that they should be paying
lower premiums, or no premiums, for BC MSP. For 2017 or 2018, a
person with ADJUSTED family net income less than $42,000 (so, senior
couple with line 236 family net income of $48,000) should be applying for
premium assistance. If you've been paying in past years when you
shouldn't, MSP will refund as far back as 2011 premiums (as per a person I
spoke with at MSP today). ADJUSTED family net income of less than $26,000
for 2018 (so, senior couple $35,000) means NO PREMIUMS are payable.
If your income is relatively low ($30,000 for an
individual) and your tax return is fairly simple, you may be able to get free
help to prepare your tax return.
NetFile will be available starting Feb 26, 2018 for filing
2014 to 2017 personal income tax returns. Returns for years prior to 2014
must be filed on paper. EFile will also be
available starting Feb 26, 2018.
The LCGE is increased for indexation to $848,252 for 2018, from
$835,716 for 2017, for qualified small business corporation (SBC) shares.
LCGE of $1 million is available for qualified fishing or farming property.
We've added information on three oil spills for which we
could find cleanup cost information, including how much oil was spilled, and who
pays the cost of the cleanup. In warm waters such as the Gulf of Mexico,
there are oil-eating organisms which break down oil. These organisms can't
survive in cold water, so the oil persists.
We've included some points to ponder about the Alberta-BC
trade dispute. The points discussed today are about taxation. We'll
have more to come in future weeks. If you have comments please feel free
to make them on the Facebook post, which will allow discussion between different
parties.
Are you just out of school and wondering how you'll
eventually become financially independent? Or older, but still
wondering? Free in 30 is the story of the couple who own this website, how
they started out married life very young and with nothing, but managed to retire
at 50. No - they're not retired any more, but this is by choice. You
too can become financially independent, but not by overspending!
Yes, it's that time of year again. Both New Brunswick
(Jan 30) and Northwest Territories (Feb 8) have tabled their 2018-19 budgets,
with no new tax measures announced. BC will table its budget on February
20th, and Manitoba on March 12th. Budget consultations will end on
February 18th for Prince Edward Island, and on February 23rd for Nova Scotia.
Expenses that are paid to earn employment income can
sometimes be 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 if you were reimbursed, then the amount you
received is included in
your income. Form T2200 must be completed by your employer in order to
claim employment expenses.
The RRSP vs Mortgage
(or other loan) calculator, which now uses 2018 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. Make sure you
take advantage of available tax credits!
This month's 10 minute video discusses: CRA's postal
code project targeting rich homeowners; CRA obtaining information from 3rd
parties such as PayPal; taxation of cryptocurrencies such as BitCoin; Tax
Court Case re miscoding of revenues on corporate tax return; another
change for 2017 re filing requirements for principal residence exemption;
IRS revoking or denying passports for unpaid taxes.
Now that you know your end-of-year RRIF market value,
use our RRSP/RRIF
calculator to calculate your 2018 minimum annual withdrawal, and to estimate
your earnings and withdrawals from your
RRIF for the next 40 years. If you haven't converted to a RRIF yet, or
if you only have non-registered investments, this
calculator is still useful for you! The maximum withdrawal
calculation has been refined to provide a result closer to the number of years
desired.
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 retain data for you on your computer so you
don't have to re-enter everything the next time you use it.
It was an exceptional year for most stock markets, and a good
year for the S&P/TSX. However, the returns on foreign stocks in Canadian
dollars were less than in US dollars because the Canadian dollar once again 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
1, 5 or 10 years one would be losing money after inflation by investing in
Canadian 3-month T-bills or Canadian government 1-3 year bonds.
Whether the TFSA or the RRSP would be a better choice for you
depends on your income and your financial situation. This article points
out the advantages and disadvantages of each of these registered accounts, and
when one might be better for you than the other.
You can transfer shares from a non-registered account
to a registered account, such as your RRSP or TFSA, 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.
Starting February 2018, eligible individuals with low income
or a fixed income that is unchanged year-to-year will be invited to make a phone
call to a dedicated automated phone line, answer a series of short questions and
give some personal information, to file their tax returns.
Also starting February 2018, tax packages will be mailed to
individuals who normally file paper returns, so that they don't have to go to a
Canada Post office to get these forms.
The working income tax benefit (WITB) is a federal refundable tax
credit for low-income individuals or
families with working income over $3,000 (base amount for most provinces and
territories). The tables for 2017 have been confirmed to CRA amounts. The
tables for 2018 are our calculations based on the 2018 indexation factors, and
will be confirmed when WITB amounts are available from CRA in November 2018.
If foreign funds are used to purchase or sell shares, Canada
Revenue Agency indicates that the exchange rate on the settlement date, not
the trade date, should be used when converting to Canadian dollars.
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 2017 is 1.2986.
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