Archive for the ‘CRA’ Category

Tax Loss Selling – Turn a Loss Into a tax Win!

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When it comes to investing let’s face it, you win some, you lose some. While capital gains are always the goal, sometimes selling shares incurs a loss – but is it all bad? Not when you consider the “glass half full” strategy – “Tax Loss Selling”.

What is tax loss selling?

Tax loss selling is a tax planning tool that can reduce potential tax liability by minimizing capital gains. So, if you have realized capital gains during the year, and don’t mind selling investments at a loss to help reduce your taxes, then tax loss selling is a strategy for you.

How it works

Let’s say you have two securities, ALPHA and BETA. During the year you decide to sell security ALPHA which would yield a capital gain, but you also held security BETA which underperformed and has an unrealized loss. If you sold security BETA as well, you could recognize the losses and reduce your overall capital gain, which reduce the taxes you pay.  In this way, your loss could become a win!

What else you should know

  • You (and your spouse) cannot repurchase the same shares within 30 days of the sale (that means before or after the sale). Otherwise, the CRA will consider your loss as superficial. That means the loss will be denied and added back to the cost of the newly purchased shares.
  • This selling strategy should only be considered when dealing with a non-registered portfolio.
  • If you have had gains in the previous three tax years and are expecting capital losses in the current year, you may be able to carry those losses back three years.
  • Conversely, capital losses this year may be carried forward if you are anticipating gains in the future. Capital losses can be carried forward indefinitely with no expiry.

In order to take advantage of the tax savings of this strategy, remember that December 27, 2019 is the last day to sell your shares. This is because only trades settled on or before December 31 will be considered for tax purposes. If you would like more information on tax loss selling, give us a call today and let us help you WIN at the tax game.

Cloud-Based Payroll Apps – TO THE RESCUE!

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We all enjoy getting paid. However, the process to ensure everyone gets paid accurately and on time can be a challenge. If payroll is part of your responsibilities, then you know what we’re talking about. Chained to your desk for hours, struggling to keep up with compliance rules, stressing to reach your payroll deadline and then – YIKES – you’re right out of cheques! Does this sound familiar? It might, if you’re using desktop payroll software. If you’re stuck in this vicious cycle, then cloud-based payroll apps may be the rescue remedy you need!

Set up takes minutes

Once you’ve transitioned to cloud accounting solutions, such as QuickBooks Online, it’s really becomes quite simple. A few minutes of your time setting up a payroll app today can save you BIG TIME down the road. For example, if your payroll is pretty consistent every month – it can basically run itself. Hourly employees, salaried employees, or contractors can all be set up to be paid at the same time.

Why should  you do all the work?

Most payroll apps offer similar features, some even do more than just payroll. The payroll apps outlined below allow employees to set themselves up and be responsible for their personal information. For example, they can review and access their paystubs on-line whenever they want. The apps also automatically perform payroll calculations and update the latest tax tables which takes the pressure off you! Here are some other liberating features:

  • Direct deposit – No more cheques required!
  • Automatic payroll calculations – No more tedious number cruching!
  • Online paystubs – Help save the environment!
  • CRA/WCB Remittances – Ensures you’re compliant!
  • Records of Employment – Off-boarding made easy!
  • Year end T4/T4As – The app prepares these, not you!

So, if you’re interested in breaking free and saying good-bye to the old-school approach to payroll, call us today. We’ll help you get current, get organized, and save you the precious time you need to focus on growing your business.

Goodbye “Old School” Data Entry – Hello Hubdoc!

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Are you up to your eyeballs keeping track of receipts, invoices and bank statements? Business owners know that the CRA requires these supporting documents to be in order in the event of an audit. However, the time it takes to gather and input all this information throughout the year can seem daunting! We feel your pain and want to share a more efficient way to keep track of these necessary documents.

Introducing: Hubdoc! Hubdoc is a cloud-based software that helps you collect, manage and organize receipts, invoices and statements seamlessly. Here’s how it works:

  • Hubdoc automatically fetches the latest monthly bank and credit card statements from all major banks. It can also fetch monthly bills from a growing list of vendors. (Yes, it’s that helpful!)
  • Hubdoc keeps a digital backup of your receipts and invoices in one central location. These can be easily submitted to Hubdoc through automatic fetch, email forwarding, scanning or just taking a picture through their mobile app. (Yes, it’s that easy!)
  • Using machine learning technology, Hubdoc extracts key information such as vendor name, dates and dollar amounts from your uploaded documents. (Yes, it’s that smart!)
  • Hubdoc integrates with QuickBooks Online which can help you automate your bookkeeping. With a click of a button, you can export the extracted data from Hubdoc and automatically create a transaction in QuickBooks Online. (Yes, it’s that automated!)

Using Hubdoc to automate your data entry and bookkeeping chores will leave you valuable time to focus on expanding your business. To refresh your memory about Cloud Accounting, please refer to our June 2019 blog. To find out if Hubdoc is right for you, contact us anytime. Say goodbye to old school headaches and say hello to Hubdoc!

Should You Steer Clear of Company Owned Vehicles?

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It depends on how much business driving you do. In cases where business use is minimal, a company owned vehicle is simply a tax nightmare.

The Bumpy Ride from Phantom Income

On company owned vehicles, CRA imputes phantom income to the employee as follows:

  • Standby Charges – Calculated with reference to the purchase price of the vehicle (if owned) or the manufacturer’s suggested retail price (MSRP) for a leased vehicle.
  • Operating Cost Benefit – Calculated in relation to the company paid outlays like gas, repairs and insurance, etc.

In either case, you must include this phantom income depending on the extent to which the vehicle is used for business purposes.  If you don’t drive more than 1,000 KM per month on business AND have more than 50% personal use, the standby charge is a big number – the more expensive the car, the bigger the number gets.  The kicker is, as your car depreciates each year, the standby charge income stays high based on the original price you paid (or MSRP, if leased).

A Typical Road Travelled

Consider a typical scenario. A vehicle costing the company $40,000 is used 365 days a year by an employee (maybe the owner) who drives it to and from work (which is NOT business use) for a total of 30,000 personal KM a year.  The automobile benefit for this employee is $18,000 each year.  This amount is taxed at the same rate as salary and must be included on the employee’s T4.  If the automobile is used for five years, the benefit will remain at $18,000 even though the vehicle is depreciating over time. Over five years there would be $90,000 reported on this employee’s T4, even though the original cost of the vehicle was only $40,000!

Driving the Point Home

If you want to reduce the standby charges and operating cost benefit because you believe you are using your vehicle a lot for business purposes, buckle up for a tough drive! CRA requires you to maintain an accurate mileage log as proof of the percentage you use your vehicle for business. Also, if your phantom income is not reported properly, a CRA audit is sure to ensue, along with penalties and interest – we see this all the time!

The bottom line to our opening scenario, is that it makes better sense for the employee to buy the vehicle and ask for a tax-free mileage reimbursement for business KM’s driven at CRA’s allowed per KM rate.  No T4 implications, no phantom income, no complex reporting, no hassle. They simply keep track of the few business KM’s to support their expense claim. Done and done!

If you’re contemplating a business vehicle, we suggest giving us a call to discuss the tax implications. In the meantime, use this Automobile Benefits Online Calculator and start steering yourself in the right direction today.  https://apps.cra-arc.gc.ca/ebci/rhac/prot/ntr.action

Seniors – The Good, The Bad, and The Blogs

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So, you’ve finally entered your “golden years”. It’s a time to enjoy the perks of turning 65 – senior’s days, passes and discounts. You now have more time to spend either with your family, in your garden, or mastering what was once only a hobby. To be realistic though, it’s not all golden.

Among other things, changes in health, technology and finances can add an element of stress that can easily tarnish your golden years. For example, financial predators prey on the trusting nature of seniors and view them as easy targets. Also, declining health coupled with rising healthcare costs can impact your retirement budget. These and other challenges can lead to frustration and stress – something we’d all like to minimize!

How can you minimize health care costs, keep up with technology risks, and keep one step ahead of financial predators? At Scarrow Yurman & Co., we empathize with your struggles and regularly provide timely support for seniors’ issues in our monthly blogs. Below are some of our past blogs that you may remember.

Disability Tax Credit – Are You Eligible?

Travel Expenses for Medical Expense

Medical Expenses

Fraud – It’s Rampant

Passwords Made Easy

CRA / IFRS Fraud Alert – Part 1

CRA / IFRS Fraud Alert – Part 2

Cyberattacks – Are You at Risk

We appreciate our seniors and benefit greatly from their wisdom and experience. To continue to give back to our senior community, we invite you tell us what other related topics you’d like us to blog about. Proactively keeping informed can help minimize stress and puts you in a good position to enjoy your retirement. So let us help you, and go for the gold!

CRA – The Dark Side

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Is it really surprising that many fall victim to fake CRA collection calls? You know,the ones demanding payment or the CRA will either arrest you or launch a lawsuit against you – even repossess your home. With over 30 years of dealing with the CRA, their “Dark Side” has become more and more evident to us and perhaps explains why we have all come to expect even this sort of bad behavior as the norm. Why do we say that?

Their Dark Little Secret

Many times, we call CRA to resolve simple, straightforward issues. Easy enough, right? Not so much. The lines ring busy most of the time and it takes FOREVER to speak with someone. Is there really that many people calling the CRA at any given time? The Globe and Mail investigated this phenomenon and what they found was disturbing. The CRA actually blocks their own call lines, so they ring busy in order to “manage” their response statistics. When lines are blocked, your call can’t get to the queue, so their queue is magically only as long as they want it to be; to meet their “wait time targets”. In our view, this sort of trickery coming from a tax authority is just unacceptable.

Whose Side Are They On?

Many have commented that the CRA rarely feels like their friend. We’ve noticed that their loyalties certainly can seen extremely one-sided. Over the years, we’ve noticed negative results from the CRA time and time again. Lately, it seems most CRA auditors simply don’t know the rules and lack the business experience needed to understand each taxpayers’ unique situation. Their mandate is ‘go out and find money owed to CRA’. When this type of auditor latches on to your account for an audit, it can result in ill-advised audit adjustments which can cause you frustration and stress!

Fighting the Dark Side

So, what if we feel they are wrong? Interestingly, many times they are. A recent Globe and Mail article said most audit adjustments were overturned when the taxpayer fought back. But beware! Fighting back costs much in the way of time (months, even years) and money if you need professional help. When all is said and done, who pays even when the CRA is wrong? – YOU DO!

It’s Not All Doom and Gloom

To be fair, we do run into competent CRA officers that are helpful and efficient. The CRA is also continuing to advance their electronic portal and its services. This portal saves our clients time and money and Scarrow Yurman & Co. is presently using it to its fullest potential.

Between the Globe and Mail and the Auditor General, the CRA has recently come under some scathing criticism, which we fully support! That’s why, at Scarrow Yurman & Co., part of our mandate is to act as a liaison between our clients and the CRA. It’s our privilege to stand up for our clients, even aggressively when necessary. We’re not afraid to stand up to the“Dark Side”!

Bookkeeping – Working Smart

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Bookkeeping is not just entering transactions, reconciling your bank statement and saying, “I’m done!” Bookkeeping lays the foundation for everything that is extracted from your financial data, and business owners deserve data they can trust. Good bookkeeping does require work, but working smart now saves time, money and headaches later. Here are some tips for working smart.

Be organized and efficient – We’ve all been there – scouring pockets, wallets and vehicles searching for a missing receipt from months back. That’s human, but frustrating nonetheless. However, when you have a consistent and secure location for receipts and allocate expenses as you pay for them, you decrease the risk of missing receipts or transactions.

Be software friendly – Trying to save money by not upgrading to the latest software or software update is not working smart. Not using current software can leave your files vulnerable to cyber hackers, not to mention the frustration of a slow and glitchy software experience. Keeping current also means you’ll benefit from many new features and improvements that can make bookkeeping easier and more efficient.

Be financially separate from your business – It may take some time to set up business accounts and credit cards but doing so is working smart. It’s much easier to track business transactions, and you’ll save money as your accountant won’t have to spend time sorting business vs personal transactions at each year end.

Be reconciled to reconcile – Reviewing your bank statements, credit card and vendor statements monthly (at the very least) can help you catch errors or potential fraud early in the game.

Be mindful – Use a sticky note, set an alarm in your calendar – whatever it takes to prepare and file sales tax, employment and payroll tax, worker’s compensation and income tax ON TIME. Also, remit the amounts owing ON TIME to avoid penalties and interest.

Be careful – If your bookkeeper is unsure about the posting of any unusual or complicated transaction, they should seek guidance from your accountant. A quick call can save a lot of trouble down the road.

Working smart may mean some extra effort and diligence today, but is definitely worth it to have a successful tomorrow!

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!

 

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.

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