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Tax Tip 1 of 12
Online access to your tax information
Stop waiting for the mail! You can now review your tax accounts online.
“The Canada Revenue Agency (CRA) has electronic services that let individuals access their tax and other financial information online,” explains Chartered Accountant Byron Beswick, Senior Tax Manager, Soberman LLP, Toronto.
“My Account allows you to review all kinds of information, including your tax returns and carryover amounts, RRSP deduction limit, and information on the status of your Home Buyers’ Plan and Lifelong Learning Plan, disability tax credit and benefit payments.”
You can also manage your personal income tax and benefit accounts online. Among other things, My Account allows you to change your address or telephone number, apply for child benefits, arrange a direct deposit, and formally dispute your assessment. You may even be able to access information online before you receive official notification in the mail.
“My Business Account offers similar services for businesses,” Beswick adds.
For further information and to apply for an account, individuals and businesses should visit the CRA website here, and click on My Account or My Business Account.
Tax Tip 2 of 12
Giving in difficult times
The more troubled the economy, the more requests for donations we seem to receive.
“Donating helps everyone – you the taxpayer and those in need,” says Chartered Accountant Rosa Maria Iuliano, Tax Partner, Collins Barrow Ottawa LLP in Ottawa.
“Donating to Canadian-registered charities has many benefits – both personal and tax-wise. Not only are you helping those in need, but you can also take advantage of the non-refundable tax credits. Donations are eligible for a federal tax credit of 15 per cent of the donation amount on the first $200 you donate, and increase to 29 per cent of the amount over $200. You can claim all or part of this amount to a limit of 75 per cent of your net income.”
For gifts of certified cultural property or ecologically sensitive land, you may be able to claim up to 100 per cent of your net income. In addition, you will be eligible for a provincial tax credit.
You can also claim donations on your income tax return. Often times, charitable organizations will not automatically provide receipts if the amount is less than a certain sum. However, you should always request a receipt, regardless of the amount.
“You require the tax receipt to support your charitable donation deduction,” advises Iuliano. “So be mindful of whom you give money to. Be sure the organization is a registered charity and, if you are not sure, you can look on the CRA website here, to confirm the registration.”
Tax Tip 3 of 12
Tax Grant for Ontario senior homeowners
Seniors who own their own homes will be happy to hear that they may be eligible for the Ontario Senior Homeowners’ Property Tax Grant to help them pay their property taxes.
“The Ontario Senior Homeowners’ Property Tax Grant is designed for eligible senior homeowners with low and moderate incomes,” says Chartered Accountant Geoff Fisher, KPMG LLP in Sudbury. “The maximum grant for 2010 is the lesser of $500 and your property tax paid for 2009. For 2009, the grant was restricted to $250.”
To obtain this grant, you must file Form ON479 Ontario Credits and Ontario Senior Homeowners’ Property Tax Grant with your personal income tax return. While the grant is based on your income tax return, the grant cheque is mailed separately. You will usually receive it four to eight weeks after your tax return is assessed.
To qualify for this grant, you must, effective December 31 of the prior year: reside in Ontario; own and occupy your principal residence and have paid property taxes; and be 64 years of age or older.
“Only one grant is allowed per couple,” Fisher continues, “and the amount of the grant will be restricted based on your income.
“Single seniors who paid over $500 in property taxes and have income under $35,000 will receive the full grant. If their income is between $35,000 and $50,000, the grant is proportionately smaller. If your income exceeds $50,000, no grant is available. Senior couples will qualify for the full $500 grant if their combined income is less than $45,000. If their income is between $45,000 and $60,000, they will receive proportionately less. When their combined income exceeds $60,000, no grant is payable.”
If you were eligible for the grant in 2009 but forgot to apply for it when you filed your 2008 tax return, you can still apply. To do so now, you must request an adjustment to your 2008 tax return and file the 2008 form ON479.
Tax Tip 4 of 12
Incorporate to defer taxes
Consider incorporating your business – it will help you save taxes and may even reduce your credit needs.
“Active Canadian-controlled private corporations that carry on business in Canada enjoy significantly lower tax rates than individuals,” says Chartered Accountant Sam Zuk, Partner, Soberman LLP, Toronto.
“In 2009, individuals residing in Ontario who earn between $81,453 and $126,264 will be subject to a tax rate of 43.41 percent. Personal earnings that exceed $126,264 will be taxed at 46.41 per cent.
“Compare this to the income earned by an active business corporation in Ontario that is a ‘Canadian-controlled private corporation’,” Zuk continues. “Starting this year, the combined federal and Ontario small business rate falls from 16.5 per cent to 15.5 per cent on July 1. For a full year ending on December 31, 2010, the tax rate will be approximately 16 per cent. So an individual could defer a percentage of his or her taxes. That saving could provide a corporation with more cash to fund operations, capital asset acquisitions, business expansion and investment. It could also greatly reduce its dependency on lending institutions.
“Just remember that this tax deferral only applies to funds that are left in the corporation for corporate use. Those used for personal benefit will attract tax at the individual marginal rates. That means the more you can leave behind, the greater the benefit of the tax deferral.”
Tax Tip 5 of 12
U.S. Rental Income
With U.S. housing prices still in decline, many Canadians continue to purchase rental property in the United States.
In certain situations, your tenants will have to withhold a hefty 30 per cent of the gross rents and send it to the Internal Revenue Service (IRS). This will be the amount required to cover the U.S. tax owing on your rental income, with no deductions.
But as Chartered Accountant Karyn Lipman, Tax Partner, Soberman LLP, Toronto, explains: “If you make a ‘net rental election’ on a U.S. tax return, then your tenant may not have to withhold from the rents.
“You will only be required to pay tax on the rental income after taking into account any deductions, and be taxed at graduated rates – not the flat 30 per cent rate,” she continues.
Lipman suggests that you contact a U.S. tax specialist to ensure this election is necessary and done properly.
Tax Tip 6 of 12
Children’s Fitness Tax Credit
I want to dance… swim… play hockey. The list goes on and on!
“As parents we hear requests like these all the time,” says Chartered Accountant Rosa Maria Iuliano, Tax Partner, Collins Barrow Ottawa LLP. “Our children want to be active, and the Government of Canada is supporting families through a non-refundable tax credit to parents who pay to register their children in prescribed programs of physical activity.”
Under the Children’s Fitness Tax Credit, you can claim up to $500 per year for eligible fitness expenses paid for each child, as long as your child is under the age of 16 or, if eligible for the Disability Tax Credit, under the age of 18 at the beginning of the year in which the expenses are paid.
Iuliano explains that eligible expenses must be for the cost of registration or membership in programs that are ongoing (either for a minimum of eight consecutive weeks or, for children’s camps, five consecutive days). These programs must also be supervised and suitable for children, and include a significant amount of physical activity. The eligible expenses are amounts paid by you or your spouse/common-law partner in the taxation year, regardless of when the activity actually takes place.
“To claim the credit on your tax return, you must have a receipt from the organization stating the amount of eligible expenses paid in the calendar year. The receipt must also have the organization’s name and address; name of the eligible program or activity; amount received; date received and amount that is eligible; full name of the payer; full name of the child; the child’s year of birth and an authorized signature,” Iuliano advises.
While the Children’s Fitness Tax Credit gives parents a few extra dollars for more activities, the jury is still out on whether it will make those crack-of-dawn hockey practices any easier!
Tax Tip 7 of 12
Buy or sell investments in tough times
These days, buying or selling any investments is a difficult decision. If you investigate the tax rules first, it may help to make that decision a lot easier.
“You may even be able to save money if you understand the rules,” advises Chartered Accountant Bruce Ball, National Tax Partner of BDO in Toronto.
If you have an investment with an accrued loss, certain tax rules can prevent you from claiming a capital loss if you do one of the following:
- Sell the investment for a loss, and buy it (or an identical one) back within 30 days.
- Sell the investment for a loss, and your spouse buys that investment from you (or an identical one) within 30 days.
- Transfer the loss investment to a Registered Retirement Savings Plan (RRSP) or, a Tax-Free Savings Account (TFSA), as a contribution.
- Sell the investment for a loss, and your RRSP or TFSA buys that investment (or an identical one) within 30 days.
In the first two situations, the denied loss is added to the cost of the asset, either for yourself or your spouse. In the last two situations, however, that loss disappears forever.
Tax Tip 8 of 12
It pays to hire apprentices
Are you an employer paying wages to a new apprentice?
“Then the Apprenticeship Job Creation Tax Credit could help you,” says Chartered Accountant Scott Conner, Senior Manager – Tax with BDO in Huntsville.
Conner explains that eligible employers will receive a non-refundable tax credit equal to 10 per cent of the salaries and wages paid to qualifying apprentices, to a maximum credit of $2,000 per year, per apprentice. Special rules ensure that, when an apprentice works for two or more related employers in a year, the combined credit does not exceed $2,000 and the $2,000 credit can only be allocated to one employer.
“Qualifying apprentices are those who work for eligible employers in qualifying trades during the first two years of their provincially registered apprenticeship contracts. Qualifying trades are prescribed, and include the Red Seal trades like tool and die makers, welders and plumbers. Regulations prescribing other trades may be forthcoming,” advises Conner.
The Apprenticeship Job Creation Tax Credit is available to eligible employers with respect to salaries and wages paid to qualifying apprentices on or after May 2, 2006. Employers can carry unused credits back three years and forward 20 years to reduce federal income taxes payable in those years.
Tax Tip 9 of 12
More financial security for those with disabilities
If you are disabled or know someone who is, there are tax benefits and new savings opportunities available that should be explored before filing tax returns.
“If you or a family member has a prolonged and severe medical condition that restricts basic daily-living activities, certain programs are available to provide more financial security,” explains Chartered Accountant Byron Beswick, Senior Tax Manager, Soberman LLP, Toronto.
“These include the Disability Tax Credit and a new federal-government-sponsored savings plan called the Registered Disability Savings Plan (RDSP). A RDSP can help parents and others save for the long-term financial security of a person who is eligible for the Disability Tax Credit. In addition to certain tax benefits, a RDSP allows access to matching government contributions.”
Check the Canada Revenue Agency (CRA) website at
http://www.cra-arc.gc.ca/tx/ndvdls/sgmnts/dsblts/menu-eng.html for more information.
Tax Tip 10 of 12
Be prepared for a tax audit
Just knowing that you are being audited is enough to strike fear in the heart of the average taxpayer.
“There is no need to panic,” advises Chartered Accountant Geoff Fisher, KPMG LLP in Sudbury.
“It is important to be prepared though. After your tax return is assessed, the Canada Revenue Agency (CRA) may select it for further scrutiny. If your return is being reviewed or, as many people refer to it, “audited”, you’ll want to have your documents ready.
“The tax audit should not normally be a concern, as long as you have maintained proper books and records, not made inappropriate tax filings, and kept all your relevant tax receipts,” says Fisher.
An audit of an individual taxpayer will generally be a “desk audit,” while the audit of a business or corporation could involve a “field audit.” A desk audit will usually just translate into providing supporting information for specific claims, while a field audit will generally involve a CRA auditor visiting your place of business.
“If, for example, you e-filed your personal return, the audit may be as simple as providing back-up slips for items including Registered Retirement Savings Plans (RRSP) contributions and donations.
“For business owners though, a field audit may be more detailed and involve a review of bank accounts, sales and purchase invoices, ledgers, journals, expense accounts and corporate minute books,” explains Fisher.
Tax Tip 11 of 12
Tax-Free Savings Account can save you money
Don’t forget that a Tax-Free Savings Account (TFSA) gives you yet another way to save money and taxes too.
“The Tax Free Savings Account allows Canadian residents who are over the age of 18 and have a valid Social Insurance Number (SIN) to invest up to $5,000 per year and not pay tax on any income earned in this account.” says Chartered Accountant Rosa Maria Iuliano, Tax Partner, Collins Barrow Ottawa LLP.
TFSAs may be set up by any financial institution, including investment brokerage firms, insurance companies, mutual fund dealers, trust companies and chartered banks. Most investments that can currently be held in an RRSP are eligible, including certain savings accounts, guaranteed investment certificates (GICs), mutual funds, stocks and bonds. Income, including interest, dividends and capital gains, can be earned, and no tax applies.
“You can withdraw the funds tax-free when you need them,” Iuliano explains. “The TFSA pool is never reduced, even if you make a withdrawal, and any unused contribution room can be carried forward indefinitely.”
Withdrawals, excluding qualifying transfers made from your TFSA during the year, will be added back to your TFSA contribution room at the beginning of the following year.
TFSA contributions are made with after-tax dollars and in some cases will be more beneficial than making RRSP contributions.
Tax Tip 12 of 12
Have you overstayed your U.S. welcome?
Before you stock up on suntan lotion and head south, you might want to check the United States tax rules first.
“Escaping winter for too long could cause you some U.S. tax problems,” cautions Chartered Accountant Karyn Lipman, Tax Partner, Soberman LLP, Toronto.
“The U.S. taxes its citizens and residents on their worldwide income,” she explains. “If you spend 183 days or more in the States, you could be deemed a resident for tax purposes.”
Canadians who spend significant time in the U.S. should consider that they may be obligated to file U.S. taxes, Lipman says. “For example, under U.S. domestic rules, snowbirds spending more than 121 days in the country each year over a three-year period might also be considered U.S. tax residents. This is based on a formula that calculates the total days spent in the U.S., even if the taxpayer is not there for six consecutive months (183 days or more) in any given year.”
Lipman emphasizes that this is just one illustration. Many other scenarios or circumstances can effectively cause the same result.
“In some circumstances, the individual may be able to avoid being deemed a U.S. resident by filing a special form with the U.S. government on a timely basis,” she continues.
If you believe that you might have U.S. tax-filing obligations, Lipman suggests you consult a U.S. tax specialist.
Brought to you by the Institute of Chartered Accountants of Ontario.