Author Archives: Allan

2013 Tax Changes for All Canadians

New tax legislation applying to all Canadians has taken effect as of January 1, 2013. The legislation is broad reaching. What follows below are the most significant changes facing Canadians.

The age for early retirement under the Canadian Pension Plan (CPP) remains unchanged at age sixty. However, the payout from the pension will be lower if you file for benefits after January 1 than if you did so on December 31, 2012. Also, in mid-2013, seniors reaching age 65 may now defer collecting Old Age Security (OAS) pension benefits until age 70 if they choose. The objective of these changes is to encourage elderly workers to remain in the work force longer in exchange for a higher benefit payout later in life. Workers who defer collecting their benefits will receive higher payouts when they do collect. Here’s how maximum CPP benefit payouts are set for 2013 based on attained age when benefits are received:

    CPP Maximum Monthly Benefits by Age

  • Age 60 (early retirement): $684.45
  • Age 65 (average age retirement): $1,012.50
  • Age 70 (oldest allowable retirement age): $1,437.75

As you can see, deferring retirement by five years from age 65 to age 70 is tantamount to purchasing a lifetime annuity for $425.25. From a purely financial viewpoint, deferring retirement for five years is a good deal as a lifetime annuity with a monthly payout of $425 would cost on average $70,000 if purchased at age 65.

The tax reforms also increased the Employment Insurance (EI) premiums most Canadians will pay. The EI premium increased by $49.50 and will be followed by another $51.15 increase a year later. Also, workers will be tiered based on the probability they have to make use of EI benefits. The three tiers are frequent claimants, occasional claimants or long-tenured workers (those who rarely take EI benefits). The government wants to see if the EI program can be modified so as to encourage citizens to migrate to regions where work is more consistent.

The four basic tax rates and threshold for benefits is now indexed for inflation at 2% annually. The rates are now as follows:

    Canadian Tax Rates

  • Income after $11,038 – $43,560: 15% tax bracket
  • $43,561 – $87,122: 22% tax bracket
  • $87,123 – $132,405: %26 tax bracket
  • $132,406 and above: $29 tax bracket

In addition, the tax changes will allow workers to save more of their income towards their tax free accounts. The maximum annual savings has increased from $5,000 to $5,500. The federal tax credit for senior citizens is now $6,954 with a net income-based phase out starting at $34,562 and ending at $80,258.

The new Canadian tax laws that took effect at the start of 2013 are broad and far reaching indeed. However, as can be seen from the descriptions above, the measures are largely even-handed with both incentives and counter-incentives in place. The entitlement reforms regarding the CPP are an achievement that other nations should take note of.

Posted in Tax Tips | Tagged , , , , , , | Leave a comment

Changes to the QST System for 2013

Some changes to the QST sales tax system came into effect on January 1, 2013. The changes do not affect consumers. For most businesses, the effects will be marginal, although several system changes will be required (purchases, sales, expense reports, etc..).

The QST is now calculated on the selling price not including GST. However, to ensure the total taxes payable remain the same, the QST rate has been increased to 9.975%. Total effective tax rate on goods and services sold in Quebec remain at 14.975%.

All businesses within Quebec must adhere to these changed. Please ensure to make the adjustments to your sales invoices!

Source: http://www.revenuquebec.ca/en/entreprise/taxes/tvq_tps/modifications-regime-tvq.aspx

Posted in Small Business | Tagged , , , | Leave a comment

Tax Tip #29 – Top Ways to Reduce Your Tax Bill

There are a number of ways to reduce the amount of tax you owe, and keep more money in your pocket at tax time. Below are some of the most popular credits and deductions you may be entitled to that will save you money when you file your Personal Income Tax Return.

  • Any income you earn in a registered retirement savings plan (RRSP) is exempt from tax as long as the funds remain in the plan. RRSPs help you save for your retirement and get a break at tax time too.
  • As long as you stay within your contribution room limit, you will not pay tax on any income you earn from investments in your tax-free savings account.
  • Does someone in your family regularly take the bus, train, subway, or ferry to work? You may be able to get a non-refundable tax credit for the cost of the transit passes by claiming the public transit amount.
  • Have you retired and now receive a pension? You can split up to 50% of eligible pension income with your spouse or common-law partner to reduce the overall taxes you pay. See pension income splitting for more information.
  • Do you work in the trades? Tradespeople can deduct part of the cost of eligible tools purchased throughout the year.
  • Did you buy your first home in 2011? Check out the home buyers’ amount to see if you qualify.
  • Are you a single parent receiving the Universal Child Care Benefit (UCCB)? The Government of Canada released new UCCB measures may allow you to designate the UCCB income in your child’s name instead of adding this amount to your income.
  • Medical expenses: You may be able to claim a non-refundable tax credit based on the medical expenses paid for any 12-month period ending in 2011.
  • Child care expenses: Did your children attend daycare or another program such as a summer day camp in 2011? You may be able to claim the amounts you spent on eligible childcare in 2011.

Source: Canada Revenue Agency

Posted in Tax Tips | Tagged , , , , | Leave a comment

Tax Tip #28 – How Long do I Need to Keep My Records?

As a general rule, you must keep records and supporting documents, which are required to determine your tax obligations and entitlements, for a minimum of six years.

Whether you have electronic or paper records, you may destroy your records earlier than your required retention period if you receive written permission from the Canada Revenue Agency (CRA). To get permission, you or an authorized representative must apply in writing to your tax services office and provide the reason for your request. Business owners (including partners, directors, and officers) who have registered for My Business Account can check their list of authorized representatives online at www.cra.gc.ca/mybusinessaccount.

If you are uncertain of your required retention period or wish to determine whether you must obtain written permission from the CRA before destroying your records, visit www.cra.gc.ca/records.

Posted in Tax Tips | Tagged | Leave a comment

Tax Tip #27 – How Much Should I Contribute to my RRSP?

A Registered Retirement Savings Plan (RRSP) is a program regulated by the federal government of Canada, offering tax advantages to help Canadian residents accumulate financial wealth, through a wide range of investment instruments, in order to provide financial security and income during retirement. RRSP contributions reduce your taxable income by the contributed amount. The deadline is normally March 1, but in the case of a leap year, it’s February 29.

The program is quite simple and is designed to provide you with the tax benefit immediately. Withdrawals from an RRSP will be added to the individual’s taxable income. That’s why, it’s generally best to make the contributions during your high income working years and then make the withdrawals later in life upon retirement as your income level decreases.

Your RRSP contribution room can be found on line (A) of the RRSP Deduction Limit Statement, on your latest notice of assessment or notice of reassessment.

The RRSP deduction limit is calculated by:

  • Taking the lesser of 18% of your previous years earned income from the immediately preceding year or the RRSP Dollar Limit for the year
  • LESS: The your previous year’s pension adjustment (PA) reported on your T4 if you were a participant of your company’s deferred profit sharing program (DPSP) or registered pension plan (RPP)
  • PLUS: Unused deduction room carried forward from prior years
  • PLUS: Pension adjustment reversal from past years
  • LESS: Net past service pension adjustment (Net PSPA)

The amount to contribute to RRSP will depend on each individual and the province they reside in. As a rule of thumb, you never want to make an RRSP contribution if your income at retirement will be the same or higher. You also should avoid RRSP contributions is your income is within the first tax bracket ($42,000 or under). In that case, a tax free savings plan is a much better option.

So how much will I save in taxes if I make an RRSP contribution?

The answer to this question depends on your marginal tax rate and the province of residence.

  1. An individual earning $70,000 annually in Quebec, is paying tax at the marginal rate of 38.37%. So for every $1000 RRSP contribution, he/she will save $383.70 in tax.
  2. An individual earning $95,000 annually in Quebec is paying tax at the marginal rate of 45.71%. So for every $1000 RRSP contribution, he/she will save $457.10 in tax.

In all cases, the higher your level of income, the greater tax benefit you will receive by making an RRSP contribution.

 

 

 

Posted in Tax Tips | Tagged , , , , | Leave a comment

Tax Tip #26 – Universal Child Care Benefit

Did you know that if you have a child or children under the age of six, you can receive the Universal Child Care Benefit (UCCB)?

What is the Universal Child Care Benefit?

The Universal Child Care Benefit is designed to help Canadian families, as they try to balance work and family life, by supporting their child care choices with direct financial support. The UCCB is paid in instalments of $100 per month per child for children under the age of six. To receive the UCCB, you must complete Form RC66, Canada Child Benefits Application.

For more information about the UCCB, visit http://www.universalchildcare.ca.

Posted in Tax Tips | Tagged , | Leave a comment

Tax Tip #25 – Keep Your Records to Support Your Income Tax Return

Canadians who filed their income tax return electronically or who have not enclosed their information slips and receipts with their paper-filed return should keep their tax records on hand in case they are contacted by the Canada Revenue Agency (CRA) or Revenu Quebec (MRQ).

After returns are filed, the CRA and MRQ begin work to verify reported income, as well as credits and deductions claimed. These reviews are an important method to ensure Canadians are paying their fair share of taxes.

Some of the reviews of deductions and credits are done when returns are filed and before taxpayers receive their notice of assessment. However, most reviews take place later in the year, as the CRA and MRQ work to verify the information on an individual’s return and compare it with information provided by other parties, such as an employer or spouse.

During this review process, the CRA and MRQ may contact taxpayers by mail, to ask for more information on income or credits. They may ask for copies of receipts or information slips to support a number of different claims, for example:

  • medical expenses
  • charitable donations
  • child care expenses
  • spouse or child support payments
  • moving expenses

Keeping your records on hand makes it easier to respond to these requests and will help you explain your tax and benefit situation to the CRA and MRQ.

Generally, you should keep your supporting documents for six years. Have the receipts and documentation to support your claims ready in case you are selected for review.

Source: Canada Revenue Agency

Posted in Tax Tips | Tagged , , | 2 Comments

Tax Tip #24 – New Children’s Arts Tax Credit

For 2011 and subsequent years, there is a new non-refundable tax credit for the cost of registration or membership of your child in a prescribed program of artistic, cultural, recreational or developmental activity.

You may claim eligible expenses of up to $500 per year for each of your children who are:

  • under 16 years of age at the beginning of the year in which the expenses are paid.
  • under 18 years of age at the beginning of the year in which the expenses are paid if the child is eligible for the disability tax credit.
  • Also, if at least $100 in eligible expenses has been paid for a child eligible for the disability tax credit, an additional amount of $500 can be claimed for that child.

To be eligible, a program must be supervised and suitable for children. Eligible programs include:

  • a weekly program of a minimum eight consecutive weeks duration in which a minimum of 90% of all the activities are eligible activities.
  • a program of a minimum five consecutive days duration in which more than 50% of the daily activities are eligible activities.
  • a program of a minimum eight consecutive weeks duration offered to children by a club, association or similar organization offering a variety of different activities when more than 50% of the activities offered are eligible activities or more than 50% of the time scheduled for activities offered to children is for activities that are eligible activities (if both 50% tests are not met, a prorated portion of the fees will be allowed, representing the percentage of eligible activities offered by the organization or the percentage of time scheduled for these activities by the organization).
  • a membership of a minimum eight consecutive weeks duration in an organization if more than 50% of all the activities offered to children by the organization are eligible activities (if the 50% test is not met, a prorated portion of the fees will be allowed, representing the percentage of eligible activities offered to children by the organization).
  • A program that is part of a school curriculum will be ineligible.

Eligible activities will include an activity that:

  • contributes to the development of creative skills or expertise in artistic or cultural activities.
  • provides a substantial focus on wilderness and the natural environment.
  • helps children develop and use particular intellectual skills.
  • includes structured interaction among children where supervisors teach or help children develop interpersonal skills.
  • provides enrichment or tutoring in academic subjects.

Source: Canada Revenue Agency

Posted in Tax Tips | Tagged , , | Leave a comment

Tax Tip #23 – Can’t Pay Your Taxes?

Did you know that if you can’t pay your taxes, you may contact the Canada Revenue Agency about a payment arrangement?

If you can’t pay the full amount of taxes you owe to the Canada Revenue Agency (CRA), you may be able to make a payment arrangement. If we determine that you are unable to make a full payment, an agent can work with you to develop a plan to help you pay your taxes.

Here are some important questions:

I owe more than I can pay. What do I do?

If you have reasonably tried to pay your taxes owing, contact the CRA to make a payment arrangement by:

  • calling the CRA Debt Management Call Center at 1-888-863-8657
  • making a pre-authorized debit payment using My Account
  • calling 1-866-256-1147 to make a TeleArrangement

For more information, visit Payment Arrangements.

How do I make a payment?

There are several different ways to make a payment on your taxes. You can pay:

  • through My Payment, a secure, online payment service available on the CRA Web site
  • through your financial institution by Internet or telephone banking
  • by mailing the CRA a cheque or money order
  • in person at a Tax Services Office, using a cheque, money order, debit card, or cash (exact change is required).

For more information, see Electronic payments for individuals.

What happens if I pay my taxes late?

If you think your payment will be late, contact the CRA as soon as possible. Late or insufficient payments can result in interest charges. Interest is calculated on the amount owing starting on the date the payment is due, and is compounded daily at the prescribed rate. You should always try to pay as much as you can on time. This will reduce the amount of interest you will be charged.

The CRA sets the interest rate on a quarterly basis. The current quarterly prescribed interest rate charged by the CRA is 5%.

Are there other consequences of paying or filing late?

Late or insufficient payments and late returns can also result in penalties being charged. The amount of the penalty will depend on various factors, including how late the payment or return is, how much is owed, and whether you have been late with a payment or return in the past.

Depending on the situation, you may face other consequences as well. For example, if you are entitled to a refund, the CRA could withhold your refund or family benefits, such as the GST/HST credit, until you file all outstanding returns. Furthermore, the CRA can withhold some or all of your refunds and apply them to other amounts you owe.

Interesting Statistics

Last year, through the CRA Debt Management Call Centre, some 296,000 payment arrangements were made with individual taxpayers who were unable to pay their taxes when due. They met their tax obligations by filing on time and concluding a payment arrangement for amounts due.

Source: Canada Revenue Agency

Posted in Tax Tips | Tagged , | Leave a comment

Tax Tip #22 – Donate Wisely

Important facts about charitable donations

  • Use the Canada Revenue Agency Charities Listings at www.cra.gc.ca/charitylists to:
    • Confirm the charities’ registration status
    • Locate charities in your neighborhood
    • Learn about charities’ activities and programs
    • Review charities’financial information
  • The first $200 you donate to registered charities is eligible for a federal tax credit of 15%. After the first $200, the credit increases to 29% of the amount over $200.
  • You do not have to claim all the donations you made this year on your current-year tax return. You can carry forward any donations that you do not claim in the current year and claim them on your return for any of the next five years
  • To claim a tax credit, You Will Need an official donation receipt. registered charities do not have to issue receipts. So, if you are planning to claim a tax credit, “check the charity’s receipting policy before you donate.
  • Gifts of services do not qualify for official donation receipts.

To learn more about charitable donations, go to www.cra.gc.ca/donors or watch the Giving to Registered Charities 101 videocasts on the CRA YouTube channel.

Posted in Tax Tips | Tagged | Leave a comment