The 2008 federal budget increased by 10 years to the time available for contributors, such as a parent or grandparent, to contribute to a registered education savings plans (RESP) for their child or grandchild.
Contributors may now deposit into an RESP plan for a maximum of 31 years-35 years for a taxpayer who is disabled, up from 21 and 25 years respectively.
The contribution age limit for beneficiaries of family plan RESPs has also increased. No contributions may be made on behalf of a beneficiary who is 31 years of age or older, up from 21 years of age previously.
The deadline for plan termination has also been extended. RESP plans may now stay open for 35 years, 1o years beyond the previous 25-year limit. The new deadline is 40 years for taxpayers who qualify for the disability tax credit (DTC), up from 30 years previiously.
Tuesday, December 23, 2008
Monday, December 22, 2008
EI & CPP rates for 2009
EI Rates for 2009
- Basic EI rate 1.73%
- Maximum insurable earnings $42,300.00
- Maximum annual premium $731.79
CPP/QPP Rates for 2009
- CPP/QPP rate 4.95%
- Basic exemption $3,500.00
- Maximum pensionable earnings $46,300.00
- Maximum annual premium $2,118.60
Friday, December 19, 2008
Home Office Expenses
In a recent Tax Court of Canada case, the taxpayers operated a partnership in their
home and deducted costs for painting the exterior of the house, brickwork repair, lawn care and snow removal. CRA disallowed these expenses and called them personal in nature.
The Tax Court relied on another case where the Supreme Court previously ruled that if a need exists, even in the absence of a business activity then an expense to meet the needs would traditionally be viewed as a personal expense.
In this case, the need to keep the exterior of the residence in good condition, the grounds maintained and the thoroughfares clear, existed quite separate from the partnership’s management business. Business clients rarely came to the residence. Thus, these costs were personal expenses according to the court.
Note that other expenses, such as a business permit, that were directly related to the office
in the home were certainly deductible.
home and deducted costs for painting the exterior of the house, brickwork repair, lawn care and snow removal. CRA disallowed these expenses and called them personal in nature.
The Tax Court relied on another case where the Supreme Court previously ruled that if a need exists, even in the absence of a business activity then an expense to meet the needs would traditionally be viewed as a personal expense.
In this case, the need to keep the exterior of the residence in good condition, the grounds maintained and the thoroughfares clear, existed quite separate from the partnership’s management business. Business clients rarely came to the residence. Thus, these costs were personal expenses according to the court.
Note that other expenses, such as a business permit, that were directly related to the office
in the home were certainly deductible.
Thursday, December 18, 2008
Giving "Soft" Loan to Your Children
Parents quite often make loans to their adult children to help them purchase a car, a home, or for other reasons. A loan is different from a gift. The parent can charge interest so that the loan will earn some investment income. The loan can be set up for blended payments of principal and interest or to pay interest only. There is no requirement for the parent to charge interest.
For a long term loan used to purchase a house, for example, it is quite possible that the loan will not be repaid during the parent’s lifetime. The parent could provide in her or his will that any remaining balance of the loan will be forgiven or instead become part of the child’s inheritance.
Such an arrangement does not cause any adverse tax consequences because the “debt forgiveness” rules in the Income Tax Act do not apply to the settlement of loans by inheritance or bequest.
Giving your child this type of “soft” loan is similar to giving them a part of their inheritance early, during your lifetime.
For a long term loan used to purchase a house, for example, it is quite possible that the loan will not be repaid during the parent’s lifetime. The parent could provide in her or his will that any remaining balance of the loan will be forgiven or instead become part of the child’s inheritance.
Such an arrangement does not cause any adverse tax consequences because the “debt forgiveness” rules in the Income Tax Act do not apply to the settlement of loans by inheritance or bequest.
Giving your child this type of “soft” loan is similar to giving them a part of their inheritance early, during your lifetime.
Wednesday, December 17, 2008
Tax-Free Savings Account (TFSA)
One of the major 2008 federal changes affecting individuals is Tax-Free Savings Account.
It was introduced in the 2008 federal budget. Effective January 1, 2009, Canadian who are 18 and older are allowed to save up to $5,000 per year in the TFSA investment vehicle. But not like RRSP, the contributions to TFSA are not deductible for income tax purposes, however the investment income, including capital gains earned will not subject to tax, even when withdrawn.
You can use the saving for any purpose, such as to start a new business, puchase a new car or renovate your house or even take family vacation.
Unused TFSA contribution room can be carried forward to future years.
Contact me, if you need further informatiion about TFSA.
It was introduced in the 2008 federal budget. Effective January 1, 2009, Canadian who are 18 and older are allowed to save up to $5,000 per year in the TFSA investment vehicle. But not like RRSP, the contributions to TFSA are not deductible for income tax purposes, however the investment income, including capital gains earned will not subject to tax, even when withdrawn.
You can use the saving for any purpose, such as to start a new business, puchase a new car or renovate your house or even take family vacation.
Unused TFSA contribution room can be carried forward to future years.
Contact me, if you need further informatiion about TFSA.
Friday, December 12, 2008
Capital Loss
In this tough time, many businesses or individuals are experiencing unfortunate results from their businesses or investment. I hope the following information will give some guideline how thoses losses are reported in their income tax returns.
Net Capital Loss:
Generally, if you had an allowable capital loss in a year, you have to apply it against your taxable capital gains for that year. If you still have a loss, it becomes part of the computation of your net capital loss for the year. You can use a net capital loss to reduce your taxable capital gain in any of the three preceding years or in any future year (unlimited).
Say, in 2008 you have capital losses, but in previous year (2007) you have capital gains. So, you can carry back these losses back against you capital gains. If you still have unused capital losses, you can apply these losses againts future capital gains.
But please be careful of superficial loss rules preventing you from claiming a capital loss on an identical asset that you reacquired 30 days before or after the sale date.
Net Capital Loss:
Generally, if you had an allowable capital loss in a year, you have to apply it against your taxable capital gains for that year. If you still have a loss, it becomes part of the computation of your net capital loss for the year. You can use a net capital loss to reduce your taxable capital gain in any of the three preceding years or in any future year (unlimited).
Say, in 2008 you have capital losses, but in previous year (2007) you have capital gains. So, you can carry back these losses back against you capital gains. If you still have unused capital losses, you can apply these losses againts future capital gains.
But please be careful of superficial loss rules preventing you from claiming a capital loss on an identical asset that you reacquired 30 days before or after the sale date.
Thursday, December 11, 2008
Warning from CRA to Tax Cheating Software Users
The Canada Revenue Agency (CRA) is aware that electronic sales suppression software is currently being marketed and sold to Canadian businesses. Business owners are reminded that hiding income to evade taxes is against the law. Using this software is not worth the risk.
Electronic sales suppression software is designed to work with point-of-sale systems and electronic cash registers. Businesses use the software to delete a portion of sales from their computer records to evade payment of income and sales taxes. In some cases, restaurant owners who suppressed sales using this software have collected taxes from patrons and not remitted them to the CRA as required by law.
The CRA has over 5,000 employees dedicated to finding unreported business income and ensuring that the proper amount of taxes is paid, even when sales records are missing.
The CRA is working to identify those who develop, sell, or use the software. Businesses that have used electronic sales suppression software are suspected of having hidden thousands of transactions and millions of dollars in sales. Once caught, these tax cheaters will face penalties, court fines, and possibly even jail. They will also have to pay the taxes they tried to evade, plus interest.
Although customers may not notice if a business is using electronic sales suppression software, they can do their part to ensure tax compliance by always requesting a copy of their receipt. Businesses which evade taxes are placing an unfair burden on the individuals and other businesses that accurately report their income and pay the taxes they owe.
If you have been using electronic sales suppression software and wish to come forward, you can do so through the CRA's Voluntary Disclosures Program. If you make a full disclosure before any compliance action or investigation is started, you may only have to pay the taxes owing plus interest, and you will not face penalties or prosecution in the courts. For more information on the program, go to www.cra.gc.ca/voluntarydisclosures.
(Source: http://www.cra-arc.gc.ca/nwsrm/lrts/2008/l081210-eng.html)
Electronic sales suppression software is designed to work with point-of-sale systems and electronic cash registers. Businesses use the software to delete a portion of sales from their computer records to evade payment of income and sales taxes. In some cases, restaurant owners who suppressed sales using this software have collected taxes from patrons and not remitted them to the CRA as required by law.
The CRA has over 5,000 employees dedicated to finding unreported business income and ensuring that the proper amount of taxes is paid, even when sales records are missing.
The CRA is working to identify those who develop, sell, or use the software. Businesses that have used electronic sales suppression software are suspected of having hidden thousands of transactions and millions of dollars in sales. Once caught, these tax cheaters will face penalties, court fines, and possibly even jail. They will also have to pay the taxes they tried to evade, plus interest.
Although customers may not notice if a business is using electronic sales suppression software, they can do their part to ensure tax compliance by always requesting a copy of their receipt. Businesses which evade taxes are placing an unfair burden on the individuals and other businesses that accurately report their income and pay the taxes they owe.
If you have been using electronic sales suppression software and wish to come forward, you can do so through the CRA's Voluntary Disclosures Program. If you make a full disclosure before any compliance action or investigation is started, you may only have to pay the taxes owing plus interest, and you will not face penalties or prosecution in the courts. For more information on the program, go to www.cra.gc.ca/voluntarydisclosures.
(Source: http://www.cra-arc.gc.ca/nwsrm/lrts/2008/l081210-eng.html)
Wednesday, December 10, 2008
Input Tax Credit disallowed by CRA?
Keep The Invoices.
Improper input tax credit (ITC) documentation is one of the main reasons for GST/HST reassessments. Proper invoices to support ITCs are required by Canada Revenue Agency auditors.
For example, the input tax credit may be disallowed if only the credit card slip is provided rather than the actual invoice. The supplier’s GST/HST registration number should be printed on the source document.
Some clients use credit card receipts, bank statements, and cancelled cheques to substantiate the GST/HST input tax credits. However, none of these documents showthe supplier’s GST/HST registration number.
Improper input tax credit (ITC) documentation is one of the main reasons for GST/HST reassessments. Proper invoices to support ITCs are required by Canada Revenue Agency auditors.
For example, the input tax credit may be disallowed if only the credit card slip is provided rather than the actual invoice. The supplier’s GST/HST registration number should be printed on the source document.
Some clients use credit card receipts, bank statements, and cancelled cheques to substantiate the GST/HST input tax credits. However, none of these documents showthe supplier’s GST/HST registration number.
Tuesday, December 9, 2008
Salaries Paid to Family Members
When deciding as to whether a salary should be paid to a family member, or more specifically to one’s spouse, numerous questions arise. On one side, there is the question of the risk involved that the salary may be unreasonable and having the expense being disallowed.
On the other side, there is the benefit of lower tax brackets, RRSP contribution room and unused credits. In a situation where the spouse contributes nothing to the business but is paid a salary which, if paid to an unrelated employee, would have been much lower based on the work performed, the risk mentioned above increases. However, there are numerous functions that can be performed by family members away from the business premises which are easily overlooked.
These functions are summarised below:
● Computer work,
● Banking,
● Answering the telephone and taking messages,
● Purchasing supplies,
● Delivery and pick-ups, and
● Promotional work.
In rendering government decisions to accept salaries paid to family members easier, numerous aspects should be considered such as:
● Having a written contract of employment between the corporation
and a family member,
● Salaries commensurate with duties performed,
● The educational background of family members,
● Not being overly aggressive in paying salaries to family
members,
● Keep copies of cancelled cheques, and
● If payment is made in cash to family members, have them
sign receipts.
The family members’ salaries would be reported on T4’s (Relevés 1 for Quebec) as they normally would if paid to an unrelated employee.
On the other side, there is the benefit of lower tax brackets, RRSP contribution room and unused credits. In a situation where the spouse contributes nothing to the business but is paid a salary which, if paid to an unrelated employee, would have been much lower based on the work performed, the risk mentioned above increases. However, there are numerous functions that can be performed by family members away from the business premises which are easily overlooked.
These functions are summarised below:
● Computer work,
● Banking,
● Answering the telephone and taking messages,
● Purchasing supplies,
● Delivery and pick-ups, and
● Promotional work.
In rendering government decisions to accept salaries paid to family members easier, numerous aspects should be considered such as:
● Having a written contract of employment between the corporation
and a family member,
● Salaries commensurate with duties performed,
● The educational background of family members,
● Not being overly aggressive in paying salaries to family
members,
● Keep copies of cancelled cheques, and
● If payment is made in cash to family members, have them
sign receipts.
The family members’ salaries would be reported on T4’s (Relevés 1 for Quebec) as they normally would if paid to an unrelated employee.
Monday, December 8, 2008
Maintaining Automobile Expenses
I received some questions with regards to "Automobile Log". Today, I will talk a liitle bit more about it.
The use of an automobile log provides one of the safest ways to substantiate and keep track of all
your automobile expenses incurred that are deductible for income tax purposes and the kilometres driven on income-earning activities. The type of expenses to keep track of can be broken down into two categories. They are operating and fixed expenses.
Operating Expenses
The types of operating expenses related to an automobile include gasoline, maintenance and repairs (such as oil changes and car washes), insurance, license and registration fees. Such expenses may vary in relation to the amount of kilometres driven.
Fixed Expenses
Fixed expenses differ from operating expenses in that they relate to the automobile itself as opposed to the amount of kilometres driven. When an automobile is purchased,
they would relate to the capital cost allowance and interest expense when financed. In the
case of a leased automobile, such expenses would include the lease payments. It is important to note that there are special rules and restrictions which limit the portion of actual costs that can be included in your total expenses. You can consult with your accountant to obtain more information on what these special rules and limitations are.
Deductible Expenses
Because your automobile will most likely be utilized for both business and personal reasons, it is essential that the total automobile expenses be allocated between these two uses on a reasonable basis in order to arrive at only the deductible portion for income tax purposes. The best method to achieve this will involve the distance traveled calculated by taking total kilometres driven for business purposes divided by total kilometres driven for both business and personal
purposes.
Certain expenses such as parking expenses incurred while on a business trip and car repairs made as a result of an accident while on a business trip do not have to be prorated. However, such expenses incurred resulting from a personal trip made are not deductible.
The use of an automobile log provides one of the safest ways to substantiate and keep track of all
your automobile expenses incurred that are deductible for income tax purposes and the kilometres driven on income-earning activities. The type of expenses to keep track of can be broken down into two categories. They are operating and fixed expenses.
Operating Expenses
The types of operating expenses related to an automobile include gasoline, maintenance and repairs (such as oil changes and car washes), insurance, license and registration fees. Such expenses may vary in relation to the amount of kilometres driven.
Fixed Expenses
Fixed expenses differ from operating expenses in that they relate to the automobile itself as opposed to the amount of kilometres driven. When an automobile is purchased,
they would relate to the capital cost allowance and interest expense when financed. In the
case of a leased automobile, such expenses would include the lease payments. It is important to note that there are special rules and restrictions which limit the portion of actual costs that can be included in your total expenses. You can consult with your accountant to obtain more information on what these special rules and limitations are.
Deductible Expenses
Because your automobile will most likely be utilized for both business and personal reasons, it is essential that the total automobile expenses be allocated between these two uses on a reasonable basis in order to arrive at only the deductible portion for income tax purposes. The best method to achieve this will involve the distance traveled calculated by taking total kilometres driven for business purposes divided by total kilometres driven for both business and personal
purposes.
Certain expenses such as parking expenses incurred while on a business trip and car repairs made as a result of an accident while on a business trip do not have to be prorated. However, such expenses incurred resulting from a personal trip made are not deductible.
2008 Automobile Deduction Limits & Expense Benefit Rates for Business
- The ceiling on the capital cost of passenger vehicles for capital
cost allowance (CCA) purposes remains at $30,000 (plus applicable
federal and provincial sales taxes) for purchases after 2002. This ceiling
restricts the cost of a vehicle on which CCA may be claimed for business
purposes. - The limit on deductible leasing costs remains at $800 per month
(plus applicable federal and provincial sales taxes) for leases entered into
after 2002. This limit, which ensures that the level of deductions for leased
and purchased vehicles is consistent, is one of two restrictions on the deduction
of automobile lease payments. A separate restriction prorates deductible
lease costs where the value of the vehicle exceeds the capital cost
ceiling. - The limit on the deduction of tax-exempt allowances paid by employers
to employees rose to 52¢ per kilometre for the first 5,000 kilometres
driven and to 46¢ for each additional kilometre. For the Yukon
Territory, Northwest Territories and Nunavut, the tax-exempt allowance
rose to 56¢ for the first 5,000 kilometres driven and to 50¢ for each additional
kilometre. The allowance amounts reflect the key cost components of
owning and operating an automobile, such as depreciation, financing, maintenance
and fuel costs. - The maximum allowable interest deduction for amounts borrowed
to purchase an automobile remains at $300 per month for loans related
to vehicles acquired after 2002. This limit reflects the reasonable cost of
financing a vehicle for business purposes. - The general prescribed rate used to determine the taxable benefit
relating to the personal portion of automobile operating expenses paid
by employers rose to 24¢ per kilometre. For taxpayers employed principally
in selling or leasing automobiles, the prescribed rate increased to 21¢
per kilometre. The amount of the benefit reflects the costs of operating an
automobile. The additional benefit of having an employer-provided vehicle
available for personal use (i.e., the automobile standby charge) is calculated
separately and is also included in the employee’s income.
Sunday, December 7, 2008
Claiming Automobile Expenses
One of the more common expenses claimed by taxpayers are automobile expenses (applies to any motor vehicle such as van, bus, pickup truck, station wagon, SUV or other truck). Many individuals use their automobile for work or business and incur personal expenses in doing so.
It is important to note that only expenses of a business nature are eligible as a deduction against their related income. As such, the Canada Revenue Agency (CRA) has strict requirements in ensuring that only business-related expenses are claimed. As a result, the retention of automobile tax records becomes imperative for every taxpayer that uses an automobile for work or business.
To stay out of trouble, I would highly recommend to maintain a "Automobile Log". In your "Automobile Log", you can record fuel costs, mileage, recurring expenses, lease information, lease payment or capital cost information.
It is important to note that only expenses of a business nature are eligible as a deduction against their related income. As such, the Canada Revenue Agency (CRA) has strict requirements in ensuring that only business-related expenses are claimed. As a result, the retention of automobile tax records becomes imperative for every taxpayer that uses an automobile for work or business.
To stay out of trouble, I would highly recommend to maintain a "Automobile Log". In your "Automobile Log", you can record fuel costs, mileage, recurring expenses, lease information, lease payment or capital cost information.
Saturday, December 6, 2008
Should You Incorporate Your Business?
If you own a business, you may have wondered if you should incorporate. Historically the income tax system in Canada has benefited incorporated Canadian small businesses.Although the income and deduction calculations are almost identical to an unincorporated business, the major differences are in the corporate taxation structure and tax planning opportunities.
When developing the tax plan for your business, you and your advisor should look for opportunities in the following areas:
• Income splitting with family members;
• Tax deferral to the future;
• Estate planning for you and your family;
• Utilization of the capital gains exemption; and
• Planning your retirement, including disposing of your business.
Since personal and corporate tax as well as family law issues can make this issue complex, please contact your accountant to discuss your situation.
When developing the tax plan for your business, you and your advisor should look for opportunities in the following areas:
• Income splitting with family members;
• Tax deferral to the future;
• Estate planning for you and your family;
• Utilization of the capital gains exemption; and
• Planning your retirement, including disposing of your business.
Since personal and corporate tax as well as family law issues can make this issue complex, please contact your accountant to discuss your situation.
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