Archive for the ‘Personal tax returns’ Category

TFSAs – Do You Have Room?

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In November 2016, we blogged about Tax Free Savings Accounts. Since inception, CRA has been auditing TFSA accounts and this has resulted in penalties to taxpayers who have unknowingly over-contributed. How can you be sure you have room for your TFSA contributions? Here are some tips.

Understand TFSA Withdrawals

Let’s say you’ve withdrawn funds from your TFSA. This has left room to re-contribute later, right? Not necessarily. If you withdraw funds from your TFSA, you must remember that this does not create corresponding contribution room until the next calendar year. If you contribute sooner – you could be penalized.

Ensure TFSA Transfers Are Done Correctly

If you wish to transfer funds from one TFSA to another, the transaction should be processed as a “direct transfer” by your financial institution. Otherwise, it could be viewed as a “funds withdrawn” and “funds contributed” scenario. When the latter happens, contribution room for the withdrawal will not be reinstated until the next calendar year. So, when funds are not transferred correctly, and you contribute too soon – penalties may also apply.

Keep Up-to-date with Changing TFSA Room Limits

You can have more than one TFSA at any given time, but the total amount you contribute to all your TFSAs cannot be more than your available TFSA contribution room for that year or you could get dinged with a penalty. It’s good to check each year to see if the annual limit has changed:

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html.

Always Be Aware of Your TFSA Balance

CRA has made it easy to ensure that we don’t over-contribute. Before you contribute, log into CRA’s My Account for Individuals  >  Click RRSP and TFSA tab  >  Contribution Room  >  Next.

This takes you to your TFSA page where you can find out your contribution room as of the current taxation year.

Following these simple tips can help you save money without worrying about unexpected penalties. Happy saving!

 

Do You Need a Financial Advisor?

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Costco, Superstore and Wal-Mart have got us used to the efficiency and convenience of one stop shopping. However, should this same concept be applied to your financial needs? Not necessarily.

At Scarrow Yurman & Co. we do our best to attend to the tax needs of our clients. We go beyond simply fulfilling their legal obligations and are proud to provide advice for buying and selling businesses, corporate restructuring, estate and succession planning and even retirement planning.

However, depending on the complexity of the situation or the scope of business, we feel that a “one-size-fits-all” approach is not always in the best interest of our clients. That’s why there are situations where we encourage our clients to expand their financial team to include a Financial Advisor. Having a broader support group with complementary financial services can help move a client in the right direction and give them peace of mind.

Types of Financial Advisors
Bank Financial Advisors
Financial Coaches
Financial Planners
Insurance Advisors
Investment Advisors
Mutual Fund Representatives
Stock Brokers (Investment Representatives)

Recently, we have become aware that some of our clients would like to know more about financial planning strategies including portfolio management, stocks and life insurance. We also realize that there is a sea of financial advisors out there and we want to ensure that our clients find the right fit for their unique personal and business needs. Therefore, if you are not sure you require a Financial Advisor, or would like us to recommend one, please contact us today.

Let’s get your questions answered together.

Tax Credits vs Tax Deductions – What’s the Difference?

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Although these two terms are used interchangeably, when you’re discussing tax credits and tax deductions you’re not comparing apples to apples. They are very different and knowing the differences is helpful.

Tax we owe in any given year is not based solely on our income but is also affected by the various tax dedications and tax credits we are entitled to for that year.

Tax Deductions – Reduce Taxable Income

Tax deductions reduce taxes differently depending on the marginal tax bracket you’re in. For example, if you are in the bottom marginal tax bracket and your marginal tax rate is 15%, then a $100 tax deduction will save you $15. However, let’s say you were in a higher marginal tax bracket and your marginal tax rate is 20%, then that same $100 tax deduction will save you $20 instead. Although tax deductions will generally benefit everyone, tax deductions are more effective in saving tax for those that make a higher income and are subject to higher tax rates.

Common tax deductions include:

  • RRSP Contributions
  • Childcare Expenses
  • Moving Expenses

Tax Credits – Directly Reduce Tax Liability Otherwise Calculated

Once your marginal tax rate is applied to your taxable income and the taxes owing is calculated, tax credits are applied in the final stage of this calculation to lower taxes owing even further. Tax credits differ from tax deductions because they reduce taxes independent of the marginal tax bracket you belong in. Tax credits are calculated using the bottom marginal tax rate. In other words, whether you have a taxable income of $30,000 or $200,000, a $100 tax credit will save you the same amount in taxes. Tax credits might bring your final tax owing to $Nil but are generally not going to create a tax refund.

Common tax credits include:

  • Medical Expenses
  • Charitable Donations
  • Post-secondary Tuition

Bottom line is, tax deductions will save more taxes than tax credits if you are in the higher marginal tax brackets. So remember, you aren’t deducting that medical expense, you’re claiming a non-refundable tax credit.

We hope this brief explanation of the differences between tax deductions and tax credits will help you better understand what’s going on inside your tax return. Please call us if you have any other questions or comments.

Personal Tax Season – Overcome Stress By Being Prepared

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By failing to prepare, you are preparing to fail.”

With this sobering advice in mind, we have prepared some tips to help you get organized and avoid unnecessary stress this personal tax season.

TIP #1 – Mark your calendar.
Know your deadline. For individuals, the deadline is April 30, 2018. Those who are sole proprietors have until June 15, 2018 to file. However, regardless of the deadline, taxes owed should be paid to CRA by April 30, 2018.

TIP #2 – Read your personalized tax letter.
Scarrow Yurman & Co. sends out annual personal tax letters to our clients. We recommend thoroughly reading the letter, using it as a template to determine what sort of documents we require to prepare your taxes. Also, please remember:

  • If your child is attending overnight camp, remember to tell us the length of the stay. Also, please remember that children’s arts and fitness credits were discontinued after the 2016 taxation year.
  • It is vital that you disclose all sources of income and ensure that you are providing us information for all required disclosures. The most common disclosure form is a T1135. If you had any foreign assets more than Cdn$100,000 dollars in value, you are required to disclose this. Ask your investment advisor or financial institution for a T1135 report and avoid unnecessary fines.
  • If you were only partially reimbursed for dental and other claims, be sure to provide us a summary from your insurance provider so we can add the unclaimed portion as a medical expense. (Travel insurance can be claimed as a medical expense.)
  • Remember to send us any donation receipts that you forgot to claim in the past 5 years, you may still be able to claim it this year.

TIP #3 – Follow up on missing tax slips or receipts.
T4 and T5 slips should have been received by the second week of March. You should expect to receive T3 slips starting the third week of March. If you haven’t yet received them, contact your employer or financial institution to ensure you receive your slips.

If you made donations in 2017 and have not received your donation slips, please contact the registered charity to get additional copies.

To ensure you don’t miss any medical receipts, individual pharmacies can provide you with a summary of all the prescriptions you paid for – free of charge.

TIP #4 – Keep your receipts in a secure place.
It is vital that everyone keep their receipts for seven years in the event of an audit by CRA. If you’re a sole proprietor, for the purposes of your tax return, we ask that you please keep your receipts in a secure place and only provide us with a summary so we can prepare your return more efficiently which will bring more savings to you.

TIP #5 – Students in a post-secondary institution should file their taxes.
Post-Secondary institutions issue T2202A slips that can be used against current or future taxes. Best of all, these credits are transferrable to parents at a maximum of $5,000! Students may also be eligible for additional credits such as the ON-BEN and GST/HST Credits which could mean more money in their pocket throughout the year.

TIP #6 – Expecting a tax refund? Get your money faster with direct deposit.
The CRA has been offering direct deposit for a few years now. Direct deposit ensures that your refund is directly deposited into your personal bank account. All CRA needs is your Social Insurance Number, the name of your financial institution, branch/transit number and your account number. We would be happy to set this up for you.

TIP #7 – Expecting to owe tax? Develop a payment plan that works for you.
If you expect to be paying taxes on April 30, ensure you have set aside some money to pay off your tax liability. We also encourage all our clients to contact us, so we can help you develop a tax plan that works for you.

Best wishes from Scarrow Yurman & Co. as we prepare to make this personal tax season the best one yet!

Tax Credit Changes – 2017

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CRA giveth and CRA taketh away. Actually, more “taketh” than anything!

As you run around getting all your tax slips in order, we wanted you to be aware that the CRA has nixed some tax credits and modified some current ones for 2017.

Here are a few key changes:

  • The Children’s Fitness Tax Credit and the Children’s Arts Tax Credit are now gone.
  • The Public Transit Tax Credit is eliminated as of July 1, 2017. For 2017 only, qualifying fees paid from January 1, 2017 to June 30, 2017 are eligible for this credit.
  • For tuition fees, the Education Tax Credit and Textbook Tax Credit amounts (a part of the tuition credit) are eliminated this year.
  • The Infirm Dependent Tax Credit and Caregiver Tax Credit have been replaced by the Canada Caregiver Credit. If you have a parent over the age of 65 receiving the disability tax credit, you may be eligible to transfer this $6,883 credit to your personal tax return.

Please give us a call if you have any questions. Happy personal tax season to all!

Registered Education Savings Plan (RESP): Withdrawals

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So, you did your homework and started a RESP for your child. Bravo! However, now junior is grown up and ready to go off to University – YIKES! Where did the time go? Certainly, time can seem as fleeting as our money. Below are some tips to ensure the RESP you so diligently cared for will yield the best results.

When can you start withdrawing from your child’s RESP?

Once a child is enrolled in a qualifying post secondary program, the RESP subscriber (usually a parent) can withdraw money on behalf of the child.

  • For full-time programs, withdrawals are limited to $5,000 for the first 13 weeks of enrollment. There are no limits on the amounts you can withdraw thereafter.
  • For part-time programs, withdrawals are limited to $2,500 for every 13-week period they are enrolled.

What are the tax implications of RESP withdrawals?

The RESP balance is made up of three different pools.

  • Contributions you make personally – Withdrawing from the contributions pool has no tax implications.
  • Government grants and investment income – Withdrawing from either of these pools can result is taxable income in the year they are withdrawn. We suggest ensuring your total annual withdrawals are made from these pools first until it results in the child having a high annual income. If more needs to be withdrawn in that year, consider drawing from the contributions pool. The flexibility around drawing from each of these pools varies between plans – so check with your plan administrator.

Plan to ensure the RESP account is fully withdrawn before the child graduates. There is a grace period of six months after graduation for the RESP to be fully withdrawn or transferred. Otherwise, there are penalties.

Ways to transfer the balance and avoid penalties

  • Transfer the taxable portions to your RRSP if you or your spouse have RRSP contribution room.
  • If you are in a RESP family plan, you can transfer the taxable portions to any siblings.
  • If you are eligible, you can also transfer it to a Registered Disability Savings Plan (RDSP). For this option, the beneficiary for the RESP and RDSP must be the same.

What are the penalties?

If the RESP is not fully withdrawn before the six-month deadline, any remaining government grant will have to be repaid to the government and any investment income becomes immediately taxable at your child’s marginal rate plus 20%. The contribution portion can still be withdrawn tax free even if the child has graduated. We suggest speaking with your financial institution about how you would like these funds handled ahead of time. Feel free to contact us if you have any other questions.

Disability Tax Credit – Are You Eligible?

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How do you know if you are eligible for the disability tax credit (DTC)?

CRA’s website has a tool available where you can review some questions in order to figure out whether you are eligible to apply for the Disability Tax Credit Certificate. If you want to go through the questionnaire yourself, click on this link.

We have also prepared a Disability Tax Credit Eligibility Decision Tree to help you determine whether you are eligible for the disability tax credit or not. Check it out!

Personal and Corporate Tax Instalments

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An instalment payment is a partial payment of the total amount of tax payable for the year.  Instalments are not paid in advance; they are paid during the calendar year in which you are earning the taxable income.

 Personal Tax Instalments

Not every person is subject to paying by instalments. If you have net tax owing that is more than $3,000 in your upcoming tax return, and in either of your previous two tax returns, then you have to pay your income tax by instalments.

These quarterly payments are due March 15, June 15, September 15, and December 15 prior to the income tax deadline date of April 30.

Corporate Tax Instalments

Generally, corporations have to pay their taxes in instalments. The Income Tax Act requires corporations to make instalment payments so that they are treated the same as taxpayers who have tax deducted from their income at source. In a similar manner as an individual, if the entity’s net tax owing is more than $3,000 in its upcoming tax return, and in either of its previous two tax returns, then it has to pay its income tax by instalments.

Corporations however, can pay instalments either monthly or quarterly. The due dates are dependent on the start and end of the fiscal year.

As an example,

If start of the tax year is January 1:

  • first monthly payment is due by January 31 and so on
  • first quarterly payment is due by March 31 and so on

If start of the tax year is April 1:

  • first monthly payment is April 30, and so on
  • first quarterly payment is June 30, and so on

Deadlines and Penalties For Individuals and Families

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Don't be late

Filing personal returns on time is crucial. This is especially important when you have a balance owing because the CRA will charge you a late-filing penalty based on that amount. The only time when these penalties can be waived is if there were extraordinary events that are out of your control. Otherwise, here’s what you’re looking at:

  • Per return, the penalty is 5% of your balance owing, plus 1% of your balance owing for each full month that the return is late, to a maximum of 12 months.
  • In addition, if these penalties are not paid, CRA will charge compound daily interest on the penalty amount.

To avoid paying any penalties, we encourage you to make sure your tax documents are sent to us on time for us to file your return by these deadlines:

  • Every regular resident: April 30
  • Self-employed residents: June 15

(If you have a balance owing however, you must pay the amount on or before April 30. The return can be filed by June 15.)

  • Deceased resident:
    • If the date of death was between January and October: April 30 of the following year
    • If the date of death was between November and December: 6 months after the date of death
  • Deceased self-employed resident:
    • If the date of death was between January 1 and December 15: June 15 of the following year
    • If the date of death was between December 16 and December 31: 6 months after the date of death

Travel Expenses for Medical Expense

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In what situations can you claim?

If you drive over 40 kilometers from home to obtain medical treatments, you may be eligible to claim your travel expenses as medical expense. In order to claim the travel expenses as medical expense, the following conditions must be met:

  • Substantially equivalent medical services are not available near your home;
  • You took a reasonably direct travelling route; and
  • It is  reasonable, under the circumstances, for you to have travelled to that place for those medical services.

The travel expenses of an attendant who accompanied you on the trip may also be claimable if:

A medical practitioner certifies in WRITING that you were incapable of travelling alone to obtain medical services.

Only expenses of trips that you are accompanied can be claimed by the attendant. If the attendant comes to visit you during your stay in the medical facility, the travel expenses incurred are not eligible for medical expense.

 

What type of expenses can you claim?

Depending on the distance of travel, the type of travel expenses can be claimed is different.

  • When one way distance > 40, you can ONLY claim vehicle expenses
  • When one way distance > 80km, you can claim vehicle expenses AND accommodation, meals and parking

 

How much can you claim?

You can claim travel expenses depending how much you spent.

Vehicle expenses and meal

You can choose to use simplified method or detailed method. See the link below for details and rates.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns248-260/255/rts-eng.html

Compare the amount that can be claimed under each method and use the one that’s more beneficial.

  • Receipts are required for detailed method.
  • Under simplified method, support for vehicle expenses claimed, such as mileage log, may be requested.
  • Parking and accommodation
    • You can claim the reasonable amount of parking and accommodation expenses.
    • Receipts are required.
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