Looking ahead to 2017 (December 2016)

Planning for – or even thinking about – 2017 taxes before the New Year may seem more than a little premature. However, most Canadians will start paying their taxes for 2017 with the first paycheque they receive in January, and it is worth taking a bit of time to make sure that things start off – and stay – on the right foot.

For most Canadians, (certainly for the vast majority who earn their income from employment), income tax, along with other statutory deductions like Canada Pension Plan contributions and Employment Insurance premiums, are paid periodically throughout the year by means of deductions taken from each paycheque received, with those deductions then remitted to the Canada Revenue Agency (CRA) on the taxpayer’s behalf by his or her employer.

Of course, each taxpayer’s situation is unique and so the employer has to have some guidance as to how much to deduct and remit on behalf of each employee. That guidance is provided by the employee/taxpayer in the form of TD1 forms which are completed and signed by each employee, sometimes at the start of each year, but certainly at the time employment commences. Each employee must, in fact, complete two TD1 forms – one for federal tax purposes and the other for provincial tax imposed by the province in which the taxpayer lives. Federal and provincial TD1 forms for 2017 (which will be released before the end of the year and will be available on the Forms and Publications page of the CRA’s website at www.cra-arc.gc.ca/formspubs/menu-eng.html) list the most common statutory credits claimed by taxpayers, including the basic personal credit, the spousal credit amount, and the age amount. Adding amounts claimed on each form gives the Total Claim Amounts (one federal, one provincial) which the employer then uses to determine, based on tables issued by the CRA, the amount of income tax which should be deducted (or withheld) from each of the employee’s paycheques and remitted on his or her behalf to the government.

While the TD1 completed by the employee at the time employment will have accurately reflected the credits claimable by the employee at that time, everyone’s circumstances change. Where a baby is born, or a son or daughter starts post-secondary education, or an elderly parent comes to live with his or her children, the affected taxpayer will be become eligible to claim tax credits not previously available. And, since the employer can only calculate source deductions based on information provided to it by the employee, those new credit claims won’t be reflected in the amounts deducted at source from the employee’s paycheque.

Consequently, it is a good idea for all employees to review the TD1 form prior to the start of each taxation year and to make any changes needed to ensure that a claim is made for any and all credit amounts currently available to him or her. Doing so will ensure that the correct amount of tax is deducted at source throughout the year.

Where the taxpayer has available deductions which cannot be recorded on the TD1 (e.g., RRSP contributions, deductible support payments, or child care expenses), it makes things a little more complicated, but it’s still possible to have source deductions adjusted to accurately reflect the employee’s tax liability for 2017. The way to do so is to file Form T1213, Request to Reduce Tax Deductions at Source (available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1213/t1213-16e.pdf) with the Agency. Once that form is filed with the CRA, the Agency will, after verifying that the claims made are accurate, provide the employer with a Letter of Authority authorizing that employer to reduce the amount of tax being withheld at source.

Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time. Consequently, the sooner a T1213 for 2017 is filed with the CRA, the sooner source deductions can be adjusted, effective for all paycheques subsequently issued in that year. Providing an employer with an updated TD1 for 2017 at the same time will ensure that source deductions made during 2017 will accurately reflect all of the employee’s current circumstances, and consequently his or her actual tax liability for the year.

---

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Year-end Tax Planning for RRSPs and TFSAs (December 2016)

Most Canadians are aware that the deadline for contributing to one’s registered retirement savings plan (RRSP) is 60 days after the calendar year end – in order to be claimed on the return for 2016, such contributions must be made before March 2, 2017. Many also know that contributions to a tax-free savings account (TFSA) can be made at any time during the year. Consequently, when Canadians start thinking about year-end tax planning or saving strategies, RRSPs and TFSAs aren’t often top of mind. The fact is, however, that there are some situations in which planning strategies involving TFSAs and RRSPs must be put in place by the end of the calendar year. In other situations, acting before the end of the calendar year, while not required, will produce a better tax result. Some of those situations are outlined below.

Accelerate any planned TFSA withdrawals into 2016

Each Canadian aged 18 and over can make an annual contribution to a Tax-Free Savings Account (TFSA) – the maximum contribution for 2016 is $5,500. As well, where an amount previously contributed to a TFSA is withdrawn from the plan, that withdrawn amount can be re-contributed, but not until the year following the year of withdrawal.

Consequently, it makes sense, where a TFSA withdrawal is planned within the next few months, perhaps to pay for a winter vacation or to make an RRSP contribution, to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from his or her TFSA before December 31, 2016 will have the amount withdrawn added to his or her TFSA contribution limit for 2017, which means it can be re-contributed as of January 1, 2017. If the same taxpayer waits until January of 2017 to make the withdrawal, he or she won’t be eligible to replace the funds withdrawn until 2018.

Make spousal RRSP contributions before December 31

Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plans (RRSP) in his or her spouse’s name and claim the deduction for the contribution on his or her own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year in which the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2016, the contributor can claim a deduction for that contribution on his or her return for 2016. The spouse can then withdraw that amount as of January 1, 2019 and have it taxed in his or her own hands. If the contribution isn’t made until January or February of 2017, the contributor can still claim a deduction for it on the 2016 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2019. It’s an especially important consideration for couples who are approaching retirement who may plan on withdrawing funds in the relatively new future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should an unanticipated withdrawal become necessary.

When you need to make your RRSP contribution on or before December 31

While most RRSP contributions to be deducted on the return for 2016 can be made anytime up to an including March 1, 2017, there is one important exception to that rule. Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 71 years of age – usually by converting the RRSP into a registered retirement income fund (RRIF) or purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31 is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31^st of that year.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situati

The costs of tax procrastination

Each spring, Canadians are required to fulfill two tax obligations. The first is the requirement to file an individual income tax return providing details of income earned, deductions and credits claimed, and the amount of income tax payable for the previous calendar year. The second such obligation is to pay any amount of income tax owed for that year which is still outstanding. And although the Canadian tax system is for the most part a voluntary self-reporting and self-assessing one, most Canadians do comply with those two obligations in a timely way.

According to Canada Revenue Agency (CRA) statistics, nearly 28 million individual income tax returns for 2015 had been filed by the end of August 2016. Despite those figures, there nonetheless remains a significant minority of taxpayers who have not yet filed a return for 2015, either out of procrastination or because they believe they owe taxes and don’t have sufficient funds available to pay those taxes. Whatever the reason, there is a financial cost attached to that non-compliance.

For those who have still not filed for 2015, the best strategy is to file as soon as possible. No matter what one’s tax or financial situation is, it won’t be helped by not filing a return. In fact, where taxes are owed, there is an automatic penalty imposed for failure to file on time – even if the return is only one day late. The tax filing deadline for most individuals for 2015 tax returns was May 2, 2016, while self-employed taxpayers and their spouses were required to file on or before June 15, 2016. No matter which filing deadline applied, a taxpayer who failed to file by that deadline was assessed an immediate penalty of 5% of the tax amount owing. So a taxpayer who owed $1000 in taxes and didn’t file on time will have had a penalty of $50 added to his or her bill the day after the filing deadline. As well, an ongoing penalty of 1% of the taxes owed is assessed for each full month the return is late, to a maximum of 12 months. A taxpayer who doesn’t get his or her return is during that 12 month period will therefore be assessed a penalty of 17% of the amount of tax owed (in this case, $170).

The news is worse for taxpayers who have a recent history of not filing on time. Where the CRA has assessed a late-filing penalty within the past three years, and the taxpayer fails to file on time for 2015, the failure to file penalty is increased to 10% of any taxes owed for 2015, plus 2% of that amount for each full month the return is late, to a maximum of 20 months. A bit of arithmetic will show that in a worst-case scenario, the late-filing penalty imposed can be as much as 50% of the taxes owed (in this case, $500). Clearly, any taxpayer who hasn’t yet filed his or her tax return for 2015 and owes taxes for that year should file as soon as possible, to stop the accumulation of late-filing penalties.

While paying tax penalties isn’t anyone’s idea of a good use of their money, it’s not the end of the story. The CRA charges interest on any taxes owed, starting the day after payment was due, which was April 30, 2016 for all individual taxpayers. (Although self-employed individuals and their spouses did not have to file a return until June 15, all taxes owing for 2015 were nonetheless due and payable no later than April 30, 2016.) It also charges interest on any penalty amounts levied. And, although interest rates remain near historic lows, the CRA, by law, charges interest at levels higher than normal commercial rates. The interest rate charged by the CRA on overdue or insufficient tax payments is set quarterly. For the third quarter of 2016, covering the months of July, August, and September, the interest rate charged on taxes owing is 5%.

While that 5% rate is still lower by far than, for instance, the interest rate charged on most credit card balances or even lines of credit, it is the interest calculation method used by the CRA which can really inflate the interest cost of incurring tax debts or penalties. Where an amount is owed to the CRA, interest charged on that amount is compounded daily, meaning that on each successive day, interest is being levied on the interest charged the day before. Not surprisingly, interest costs calculated in that way can add up quickly.

Contrary, perhaps, to popular belief, the CRA is prepared to be flexible with respect to tax payments. When the amount of taxes owing can’t be paid, or can’t be paid in full, it’s in the taxpayer’s best interests to contact the CRA and let them know of that fact. Not surprisingly, the CRA tries to make it easy for taxpayers who owe the Agency money to enter into a payment arrangement. Such taxpayers have two options. The first is a call to the CRA’s TeleArrangement service at 1-866-256-1147. To use this service, a taxpayer will need to provide his or her social insurance number and date of birth, and the amount he or she entered on line 150 from the last return for which a notice of assessment was received. TeleArrangement is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern Standard Time. Alternatively, the taxpayer can call the CRA’s debt management call centre at 1-888-863-8657 to speak to an agent. That service is available Monday to Friday (except holidays) from 7 a.m. to 11 p.m., Eastern Standard Time.

The taxpayer can propose a payment schedule based on his or her ability to pay, and the CRA, if it is satisfied that the inability to pay is genuine, will generally be amenable to entering into some type of payment arrangement. Entering into such a payment arrangement does not, of course, stop the interest clock from running, as interest will continue to be assessed at the current rate, and compounded daily. And, one additional blow: neither interest paid on tax debts nor penalties paid to the CRA are deductible.

Should I prepare my Accounting Records and File My Taxes on my own this year?

It’s that period of the year again. For many businesses and individuals, receipts start popping out of nowhere.  People re-discover the calculator function on their phones.  Reading glasses appear on those who can see just fine. Who doesn’t love tax time?

With the wealth of online tools available today, more and more Canadians are confident to fill their own personal and corporate taxes online.

 In many cases, filing your personal and corporate tax return is just a matter of putting the right information in the right boxes.

For example, for personal taxes, most people who are employed will have a combination of T4 slips for employment income, T3/T5 slips for investment income, RRSP slips for contributions and a few donation and medical receipts. Put in a few child-care expenses and other kids activities receipts and you’ve covered off most of the returns out there.

Can’t find a Tax Slip?

… Read How to Find It and What Happens If You Don’t

By 30th April, you’ll likely find a home littered with receipts and other transaction documents.

Yet with all the receipts and tax slips you’re supposed to keep, it’s likely some are going to go missing. A missing slip may have a big impact on your tax bill. Here is a due diligence checklists to help you avoid any penalties on missing or inaccurate information.

Check your “My Account “account online

My Account for Individuals is a great place to start to check your information. By logging into your account, you should be able to find online versions of your T4 slips. You’ll also be able to check carry forward balances like tuition credits or capital losses, as well as your RRSP contribution limits.

It’s Time to Re-Energize Your Business

Are you a new or established business owner looking after your dollars?

Are you worried how the new tax legislation and current economy might affect you?

---

Dear Fellow Business Owner,

We currently live in both volatile economic and financial times. Government deficits have prompted tax changes that further complicates the local business mix.

However, with challenges comes opportunity. These businesses not only adapt, but can also thrive under such conditions.

Seize this opportunity to review, reflect, and re-energize your business.

It all starts with a review of your current business situation:

Implications of late filing of Income tax?

With so much going on in our life, it’s not always easy to file our taxes on time. So what is the tax implication of filing late?

Before I go into the details, keep in mind that there’s a distinct difference between paying your taxes late and filing your taxes late – a difference that may have a profound effect on your cash situation.

If you file your taxes on time but don’t have the cash to pay the balance owing, you’ll be subject to interest.

However, if you miss the filing deadline and file late, you’ll automatically be subject to a late filing penalty in addition to any interest on the tax balance owing.

It’s this late filing penalty that can make filing your taxes late a real nightmare.

Let’s take a look at what would happen if you filed a few common tax returns one month late with a 20,000 balance outstanding.

19 Most Popular Tax Deductions in Calgary

It is the question every Calgary small business owner asks me: What can I deduct from my taxes?

There are an incredible amount of things that can be deducted but there are so many variables that can determine if you are eligible to deduct those items. For example, these factors will certainly affect your eligibility: your location, how much you make, children, personal status, type of business, where you do business, are you incorporated, do you work from home, do you have children, employees, other employment, commissions, employment insurance, capital gains, etc., etc. – and there are many etc’s.

1. Equivalent-to-Spouse Credit
2. Charitable Donations
3. Safety Deposit Boxes at the Bank
4. Childcare Expenses
5. Medical Expenses
6. Your First Home
7. Dividend Income
8. Disability Credits
9. Personal Income Credit
10. Carrying Charges
11. Moving Expenses
12. Self-employment Expenses
13. Kids Activity Expenses
14. Political Donations
15. Transit Pass Receipts
16. RRSP Contributions
17. Office in-home Expenses
18. Professional or union-dues
19. Interest Paid on Student Loans

How to Choose a Fiscal Year-End

It’s one of the first questions people ask themselves after incorporating:

Why choose a fiscal year-end?

A corporation’s fiscal year is an accounting cycle that serves as the basis for its income tax return. At the fiscal year-end, a corporation must prepare its financial statements then file its T2 corporate income tax return. The T2 tax return must be filed within 3 months after the fiscal year-end date to avoid interest and within 6 months to avoid late filing penalties.

So how do I choose a fiscal year ?

Just file your T2 return and your fiscal year will then be set. While the CRA may ask you to choose a fiscal year-end when you first incorporate, this generally relates to your GST/HST filings and can always be changed. Only by filing the first T2 tax return do you lock in your fiscal year.

Note that once you do lock in that fiscal year-end with CRA, it will be a bit of a process to change it. To avoid any hassle and additional professional fees, you want to make sure you choose your year-end carefully.

Tax Deductions Tip: Self-employment Expenses

This is essential information that all self-employed business owners need to read!

If you are self-employed in Canada there is a good chance you are working from home. Basically, your home is your office and you can claim a tax deduction for the part of your home you are using as your business.

Owners: If you own your home you can claim a portion of your mortgage interest, property taxes, and capital cost allowance.

Renters: If you rent your home you can claim a portion of your monthly rent. You can include in your deduction a share of the utilities, insurance or home maintenance allotted to the area of the house set aside for business use. For each of these business expenses you can claim a percentage equal to the percentage of your home that is reserved for business.

It is important to note that you are not allowed to use these expenses to create a loss or be deducted against any other sources of income.

Only expenses 100% related to your business, such as travel, entertainment for the customer, and supplies are fully deductible.

CRA has a form that contains a guide entitled “Calculation of Business-Use-of-Home Expenses” that will help you calculate your allowable claim.

*For more information on self-employment expenses please contact me for a consultation and read-up on the Canada Revenue Agency (Small businesses and self-employed) website.

---

*p.s. I am a small business accountant and growth & profit expert in Calgary, Alberta Canada. Click here to contact me anytime for help with your Small Business Accounting, Bookkeeping, Taxes, and much more.