2018 Tax Tips and Traps

What does 2018 have in store for us in the tax world?  As your Kelowna Chartered Accountants, we’ll explain with the following high-level summary of the most recent tax developments applicable to business owners, investors, and high net worth individuals.

TAX TICKLERS

Some quick points to consider:

  • CRA has required PayPal to disclose sales and other transaction records for Business Account Holders from January 1, 2014, to November 10, 2017.  It is expected CRA will review records for unreported sales. 
  • Employers can now provide a tax-free party or social event to employees where the cost per person is $150 or less (the limit was previously $100).
  • Although such cases are rarely successful, two taxpayers were awarded nearly $1.7 million in relation to CRA’s malicious prosecution.  

 

DIGITAL CURRENCY: Basics And Tax Implications

What is Digital Currency (DC)?

DC is essentially electronic money. It’s not available as bills or coins. Cryptocurrency is a type of DC created using computer algorithms with the most popular being bitcoin.

No single organization, such as a central bank, creates DC. DC is based on a decentralized, peer-to-peer network. The “peers” in this network are the people that take part in DC transactions, and their computers make up the network.

DC can be used to buy goods and services, whether in store or online. DC may also be bought and sold on open exchanges (similar to a stock market).

DC is often created through a complex process known as “mining” and then monitored by a global network of computers. About 3,600 new bitcoins are created each day, with about 16.5 million now in circulation.  Like all currencies, its value is determined by how much people are willing to buy and sell it for.

Kelowna accountant bitcoin

 

Tax – Buying and Selling Digital Currency

Gains or losses from selling or buying DCs must be reported on one’s tax return. These may be on account of capital (taxed at half rates) or ordinary income (full rate) depending on the context. It is not clear whether purchases and sales of bitcoins and other DC are subject to GST/HST.

There are no special tax rules directed specifically towards DC.  Like any property, where DC is acquired with the primary intention of selling it for a profit, any gains would be on an account of income, rather than capital.  Where property is acquired for some other purpose, such as generating ongoing income (like a rental property), the gain or loss on disposition is likely on account of capital.  

When evaluating a taxpayer’s intention, CRA will generally consider factors such as: frequency of transactions; period of ownership; knowledge of industry; time spent on the activities; financing; and the nature and quantity of the property held.

It is also important to note that some DC do not produce income (generating neither dividends like a share, nor interest like a loan).  With no plausible purpose other than resale, it becomes easier for CRA to take the position that the DC must have been purchased with the intention of selling it at a profit and therefore any gain or loss on disposition is on account of income.  This may override the other factors noted above.

That said, CRA has administratively allowed gains on certain commodity investments to be on account of capital, even though they typically appear to be on account of income based on the factors above. One condition of this policy is that all such transactions are treated the same.  In other words, one could not simply classify it to be on account of capital in “gain” years, and then income in “loss” years. It is uncertain whether CRA would adopt the same policy for sales of DC.

 

Tax – Buying and Selling Goods Using Digital Currency

Similar to sales using traditional currency, DC received in exchange for goods or services must be included in the seller’s income for tax purposes. GST/HST would also apply on the fair market value (FMV) of goods or services bought or sold for DC (subject to the same rules as traditional currency). It is not clear whether the DC itself would be subject to GST/HST, meaning that the person using DC to pay for the goods or services would be required to collect GST/HST on the value of the DC.

CRA considers DC to be a commodity rather than a currency and, therefore, transactions involving DC are considered barter transactions. This means that the sale price to be recorded in income would be determined as the FMV of the goods or services provided. If that FMV is less readily available than the FMV of the DC, the value of the DC would be used to determine the sale price.

Also, being a commodity means that these assets are not eligible to be directly held in tax preferred registered accounts (e.g. RRSPs, TFSAs, RRIFs, etc.).

 

Government Access to Records

The IRS has been successful in issuing an Order compelling one of the world’s largest bitcoin virtual currency exchanges, Coinbase, to disclose certain transaction and user information for the 2013-2015 period.  It is very possible that the CRA may obtain such types of information as well.

Action Item: Consider the tax implications (income tax and GST/HST) when investing or conducting business using digital currency.

 

FAMILY MEMBERS: Can I Pay Them a Salary?

For a small business, whether operated as a corporation, proprietorship or partnership, it is quite possible that relatives of the owners or partners may be engaged as employees. Due to the closer familial relationship between employer and employee, CRA pays particular attention to ensure that the salary is truly an eligible deduction to the business.

According to CRA, salaries to children and spouses are deductible as long as all of these conditions are met:

  • the salary is actually paid;
  • the work the family member does is necessary for earning business or professional income; and
  • the salary is reasonable when considering the family member’s age and the amount one would pay someone else.

CRA also states that T4s are required for all employees, including family members, and subject to payroll deductions, as appropriate. Payment in the form of room and board is not accepted by CRA.

CRA suggests that the average salary for an arm’s length person providing similar services under similar conditions would provide guidance as to reasonableness.

Action Item: Consider whether family members can perform services for one’s business, and what level of income is reasonable.

CORPORATE PASSIVE INVESTMENT INCOME: Proposed Changes

A new passive investment tax regime for Canadian Controlled Private Corporations (CCPCs) is proposed to apply to taxation years commencing after 2018.  Passive income may include interest, rental, royalties, dividends from portfolio investments and taxable capital gains.

Two significant changes are proposed. First, a limit to the small business deduction for CCPCs generating significant income from passive assets, and second, a new regime to stream the recovery of refundable tax to the payment of specific types of dividends (eligible versus non-eligible).

 

Access to the Small Business Deduction (SBD)

The first prong of the proposals will reduce access to the SBD for CCPCs having more than $50,000 of passive income. CCPCs with passive income in excess of the threshold will incrementally lose access to their SBD, until $150,000 of passive income is reached, at which point the entire SBD will be lost.  The prior year’s passive income will determine the current year’s SBD limit.

For purposes of these new rules, capital gains on certain types of property will be excluded from being considered passive income. These are as follows:

  • Capital gains realized on the disposition of property used principally in an active business carried on in Canada. The active business could be carried on by the owner of the asset, or by a related party. Examples include gains on the sale of the goodwill of an active business, and gains on the real estate from which the active business operates.
  • Capital gains realized on shares of another CCPC all or substantially all of whose assets are used in an active business carried on in Canada, provided the seller has a significant interest (generally over 10%) in that corporation.
  • Similarly, capital gains realized on an interest in a partnership all or substantially all of whose assets are used in an active business carried on in Canada will generally be excluded where the seller has a significant interest (generally over 10%) in the partnership.

 

Capital losses realized in a different taxation year that are applied to offset capital gains realized in the current year will not reduce passive income for these new rules.

Consistent with the existing SBD rules, the sum of passive income of all associated corporations will determine the reduced business limit available to the associated group.

The total advantage or disadvantage of earning passive investment income in a corporation, after considering personal and corporate tax costs, will depend on a number of factors such as the individual’s marginal tax rate, rate of return on the investment and the province or territory of residence.

 

Recovering Refundable Taxes

Passive income is subject to a high corporate tax rate. However, a portion of these taxes are refunded when the CCPC pays taxable dividends.

The second prong of the passive income proposals will add a new restriction. Recovering refundable taxes will generally require the CCPC to pay out non-eligible dividends. These carry a higher personal tax cost than eligible dividends.  The exception will be where refundable taxes arise from the CCPC’s receipt of eligible dividends. Dividends received from most Canadian public corporations are eligible. This portion of the refundable tax can then be recovered when the CCPC pays out eligible dividends.

Action Item: If your corporation has passive earnings in excess of $50,000 and is also earning active business income, prepare for a potentially higher corporate tax bill in the coming years.

 

REASONABLE AUTOMOBILE ALLOWANCES: GST/HST Claim

A travel allowance paid to an employee for the use of their personal vehicle for business purposes will be non-taxable if it is reasonable.  

Where such reasonable allowances are paid, an input tax credit (ITC) may be claimed by the employer.  The ITC is computed as the imputed GST/HST in the allowance, without adjustment for the fact that some costs likely did not attract GST/HST. In non-harmonized provinces/territories (such as Alberta and B.C.), the ITC would be 5/105 of the allowance.  The ITC in a harmonized province is different. For example, in Ontario, with 13% HST, the ITC would be 13/113 of the allowance. Other HST provinces would apply this formula to their respective rate.

In a November 10, 2017 Tax Court of Canada case, CRA denied ITCs of $4,935 related to motor vehicle allowances paid to employees that were also shareholders. CRA argued that the allowances were not reasonable.

 

Taxpayer wins

The allowances were based on the maximum per kilometer rates that the employer could deduct. The accounting for the allowances was complicated by the use of fuel cards provided and paid by the customer of the taxpayer. However, a detailed review of the accounting records demonstrated that:

  • detailed logbooks of business and personal driving had been maintained;
  • allowances were paid for business kilometers only, with careful tracking of personal use;
  • fuel paid by the corporate customer had been charged back to the taxpayer; and
  • the allowances paid to the shareholder-employee were effectively reduced by the customer’s fuel payments.

 

Although the accounting for the allowances was quite complicated, the Court concluded that it complied with the law and ensured the employees received reasonable allowances limited to business driving. The ITCs were, therefore, properly claimed.

Action Item: If paying reasonable allowances to employees, consider claiming an input tax credit in respect of the payment.

 

CONSTRUCTION ACTIVITIES: Reporting Obligations for Subcontractors

 

A July 17, 2017 Technical Interpretation examined the conditions which would require the filing of a T5018, Statement of Contract Payments.

Where a person or partnership primarily derives their business income from construction activities for a reporting period, a T5018 should be filed for any subcontractor payment or credit made relating to goods or services received in the course of construction activities. The reporting period may be a calendar or fiscal year but cannot be changed once selected (unless authorized by CRA).

The term “construction activities” is broadly defined. It includes, for example, the erection, excavation, installation, alteration, modification, repair, improvement, demolition, destruction, dismantling or removal of all or any part of a building, structure, surface or sub-surface construction, or any similar property. Such activities are considered to be those normally associated with the on-site fabrication and erection of buildings, roads, bridges, parking lots, driveways, etc. which are intended to be permanently affixed to the land on which they are built.

It is a question of fact as to whether a particular activity is a construction activity, and whether the business income for the reporting period is derived primarily from such activity. If a T5018 is not required, consideration should be given to the requirement of a T4A, Statement of Pension, Retirement, Annuity, and Other Income.

CRA has also noted that there are businesses that have a significant amount of construction done for them or by them, but the activity is not their principal business. For example, a natural gas company may do a large amount of construction to install pipelines, however, its principal business is gas transmission, not constructing pipelines. It would not be required to file T5018s.

Penalties are levied on the payer when T5018s are not timely filed.  Penalties range from $100 to $7,500, depending on the number of T5018s and the number of days they are late.

Action Item: If you are in the construction industry, ensure you are filing T5018s appropriately.  

 

U.S. CITIZENS: Risks of Tax Non-Compliance

Commencing January 1, 2016, the U.S. State Department was able to deny or revoke passports to U.S. citizens having a “seriously delinquent tax debt” or no Social Security Number associated with their passport. A “seriously delinquent tax debt” is one where the taxpayer owed more than $51,000, after January 1, 2018 (indexed going forward), in tax, interest and penalties.

An Alert on the IRS website recently noted that commencing January 2018 the IRS will begin certifying tax debts to the State Department. After receiving certification from the IRS, the State Department will not generally issue a passport.

In addition to passport denial and revocation, several states impose non-monetary non-criminal sanctions for certain taxpayers who are sufficiently delinquent on their taxes.  For example, New York, California, Louisiana and Massachusetts may revoke driving privileges.

Action Item: If you have an outstanding U.S. tax liability, or are concerned you may not be compliant with your U.S. tax obligations, contact us to discuss options.

CRA MOBILE PHONE APPS: Tools for Individuals and Businesses

CRA provides a number of mobile phone apps that taxpayers (individuals, corporations, etc.) can use to assist with their tax obligations.

CRA BizApp – An app for small businesses owners to view and pay outstanding balances, view account transactions, view expected GST/HST returns, and view the status of filed GST/HST and corporate income tax returns.

CRA Business Tax Reminders – An app for businesses which sends pop-up notifications and/or calendar reminders for individual and business due dates for installments (individual, corporate and GST/HST), returns, and remittances (payroll and GST/HST).

MyBenefits CRA – An app for individuals which provides a quick view of an individual’s benefit and credit payment details and eligibility information.

MyCRA – An app for individuals which provides access to key tax information such as notice of assessments, tax return status, benefits and credits, and RRSP and TFSA contribution room. It also allows individuals to request a proof of income, manage online mail, update contact information, and update direct deposit information.

Action Item: Consider using one of these apps to assist with your tax filing obligations.

 

Is it time to review your tax planning? Contact us today so we can discuss what affects you, your business and family regarding the above information.

 

The legal stuff: The preceding information is for educational purposes only as it is impossible to include all situations, circumstances and exceptions in one article. A further review of your personal circumstances should be done by Kerr & Company’s qualified Kelowna chartered accountants. No individual or organization involved in either preparation or distribution of this article accepts any contractual, tortious, or any other form of liability of its contents.

 

How to Know When to Hire a Kelowna Bookkeeper

Small business owners wear many hats.  One day, you’re the only manager on duty.  In the evenings, you’re the cleanup crew.  You’re the entire customer service department on Friday.  The marketing department on Sundays.  And sometimes, you’re all of the above within the hour.  You may not have a massive list of daily income and expenses, so it’s easy to take on the bookkeeper’s role only when necessary.  In many small businesses, accounting and bookkeeping practices get pushed to the back burner so you’re not alone if this has happened already in your small business.

As the accounting and bookkeeping tasks start piling up, you may feel part-time or perhaps full-time help is needed in getting your business organized.

First things first.  Let’s look at what a Kelowna bookkeeper actual does for small businesses.

What Is a Bookkeeper?

Bookkeeping responsibilities include:

  • Maintaining the general ledger. A Kelowna bookkeeper’s biggest responsibility because the general ledger tracks income and expenses across all areas of the operation.
  • Creating invoices. Bookkeepers also take charge of creating invoices and managing the billing process, which includes following up with late paying customers.
  • Balancing subsidiaries. Subsidiary ledgers are designed to provide more in-depth detail about certain categories of transactions, such as applicable customer discounts or labor expenses.
  • Completing payroll. If you’re paying anyone for any work they’re doing for your business, you need to have a consistent payroll system.  Without it, your workers don’t get paid correctly or on time which can significantly affect team morale.

 

At Kerr & Company, Kelowna Chartered Accountants, we can also prepare financial statements, analyze operating expenses, prepare taxes, and participated in making long-term financial and planning decisions as additional services to the bookkeeping duties.

Does your business actually need a Kelowna bookkeeper?

Every small business needs someone tasked with tracking financial transactions. Without a general ledger, you won’t have insight into profitability.   The lack of a consistent invoicing process will negatively affect your cash flow.  Without payroll, your employees go unpaid.

Entrepreneurs handle most of these tasks themselves and can for a long time without needing assistance.  Not until some of the following situations occur, does one think about enlisting back up in the bookkeeping area:

  • You’re getting behind in daily operations.  As small business owners are pulled in all directions, you could soon feel overwhelmed by everything on your plate.  As the leader in the business, your time may be better spent with customers, new marketing strategies, new hires, and expansion.  This is a great time to consider not only a bookkeeper but an accountant as well to oversee the financial side of the business.
  • Finances are getting too complex.  If you find yourself in this situation, it typically means that you’ve found success.  You’re attracting more customers, investing in more resources, expanding the business and hiring more employees.  Along with these changes, your finances will become considerably more complex. Eventually, you may not be able to keep up.  Bringing in a bookkeeper to assist you could free up your time to keep building your business to the next level of success with less stressing over financials.
  • Payroll is becoming a headache. You must stay on top on the payroll.  Your employees depend on their paycheque and will not put up with missed or late paydays.  Employees will leave, costing you more in hiring costs.  Don’t let payroll issues get out of hand.  Hire a Kelowna bookkeeper to establish a consistent process to maintain control.
  • Bills are left unpaid.  Utilities, vendors, contractors and other bills need to be paid or your working relationship with these suppliers could be affected.  In most cases, a missed payment is easy to fix but if it’s happening often, this could be a symptom of bigger business issues.  A bookkeeper watches these bills and keeps payments on time since they’re knowledgeable of the business’ financials as a whole.
  • Your invoice process needs consistency. Invoicing is how your business brings in the money.  A consistent invoicing process means invoices are sent out on time, resulting in more payments coming in one time.  A revenue stream can collapse quickly without a process in place.  If you’re noticing a problem getting invoices out and payments coming in, a bookkeeper can help regain control and streamline the system.

If you’re feeling overwhelmed with too many responsibilities, let us at Kerr & Company, your Kelowna bookkeepers, assist you with your bookkeeping needs.  As mentioned, we are chartered accountants as well and can assist with more financial tasks if ever needed.  We bring over 15 years of experience and bookkeeping knowledge to a variety of businesses in the Kelowna and Vancouver area, and would love to help your business too, no matter what the size.  Contact us to get started!

 

Kelowna Accounting Services

Tips on Making the Best Choice Between RRSPs and TFSAs

For decades, the go-to tax-sheltered savings and investment vehicle has been the registered retirement savings plan. Most Canadians are aware of the importance of making regular contributions to their RRSP.

In 2009, however, a new option was introduced called the Tax-Free Savings Accounts (TFSAs). Since then, we’ve had a choice to better meet short-term and long-term financial objectives.  And it’s right about now, close to tax season when Canadians are making the choice between RRSPs and TFSAs.

Are you taking advantage of the maximum allowable contribution to both your TFSA and RRSP every year?

Doing both may not be feasible for many incomes.  There simply isn’t enough income to go around. There are also various circumstances that make contributions to one over the other clearly the better choice.

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For Canadians over the age of 71, there is no choice. All individual Canadians must collapse their RRSPs by the end of the year in which they turn 71, and no RRSP contributions can be made after that time.

However, taxpayers over the age of 71 can contribute to a TFSA.

Many of those taxpayers, however, have transferred their RRSP savings to a registered retirement income fund (RRIF) and are required to withdraw a specified percentage of funds from that RRIF each year.

If you’re in the fortunate position of having such income in excess of current cash flow needs, that excess can be contributed to a TFSA.

The RRIF withdrawals must still be included in income and taxed in the year of withdrawal but transferring the funds to a TFSA will allow them to continue compounding free of tax and no additional tax will be payable when and if the funds are withdrawn.  Additionally, withdrawals in the future from a TFSA will not affect your eligibility for Old Age Security benefits or for the federal age credit.

For those of you who are members of registered pension plans (RPPs) may also find the savings through a TFSA are better or perhaps the only option.

The maximum amount which can be contributed to an RRSP in a given year is generally 18% of the previous year’s income. However, any allowable contribution is reduced, for members of RPPs, by the amount of benefits accrued during the year under their pension plan. If the RPP is a generous one, RRSP contribution room may be minimal, or even non-existent, and a TFSA contribution is the only logical alternative.

Younger Canadians whose savings goals are more short-term typically benefit more from contributing to a TFSA.

Where savings are being accumulated for an expenditure which is likely to occur within the next five years the TFSA is clearly the better choice.

If you’ve been in that situation, you’ve likely thought about making an RRSP contribution instead to get a tax refund, and then to withdraw the funds when the planned expenditure is to be made. However, while choosing that option will provide a deduction on this year’s return, a tax refund will still have to be paid when the funds are withdrawn from the RRSP a year or two later. From a long-term point of view, using an RRSP in this way will eventually erode one’s ability to save for retirement, as RRSP contributions which are withdrawn from the plan cannot be replaced. This can really make a difference when compounding the loss over 25, 30, or more years.

The greatest tax benefit of contributing to an RRSP is when both income and tax payable is high and the intention is to withdraw those funds when both income and the rate of tax payable on that income is lower. If that’s not the case in your situation, saving through a TFSA can make more sense.

If you’re expecting your income to rise significantly within a few years, you can save some tax by contributing to a TFSA while income is still low.  This allows the funds to compound on a tax-free basis and then withdrawing the funds tax-free once the income is higher and your tax rate will have increased. At that time, the withdrawn funds can be used to make an RRSP contribution, which will be deducted against income which would be taxed at the much higher rate, generating a tax savings. And, if a need for funds should arise in the meantime, a tax-free TFSA withdrawal can always be made.

In the case of lower incomes, where there isn’t likely to be a great difference between pre- and post-retirement income, you’re better off saving through a TFSA. That’s especially the case if you’re eligible in retirement for means-tested government benefits like the Guaranteed Income Supplement or tax credits like the GST credit or age credit.

Withdrawals made from an RRSP during retirement will be included in income for purposes of determining eligibility for such benefits or credits, and lower-income taxpayers could find that an RRSP withdrawal has pushed their income to a level which reduces or eliminates their eligibility.

Withdrawals from a TFSA are not included in income for the purpose of determining eligibility for any government benefits or tax credits, so saving through a TFSA will ensure that benefits are not at risk.

If you’re torn between RRSPs and TFSAs, we encourage you to give us a call.  By looking at your specific goals and situation, Kerr and Company, Kelowna accounting services, can determine the best strategy.  Contact us today.

Kelowna Accounting Services

Benefit from Pension Income Splitting

Have you heard of tax planning opportunities that offer the possibility of saving hundreds, or thousands of dollars in tax?  All while increasing eligibility for government benefits with no advance planning, no expenditure of funds or time? This actually describes pension income splitting, a strategy to allow married taxpayers over the age of 65 (or in some cases, 60) to minimize their tax bill by dividing their pension incomes.  Kerr & Company provides Kelowna tax services so that you, too, can benefit from this unique tax planning strategy.

Because of very little coverage in the media, many Canadians have never heard of it.  We’re so focused on the messages regarding contributions to registered retirement savings plans (RRSPs) or tax-free savings accounts (TFSAs).  Pension income splitting is rarely mentioned and gets put on the back burner. It is one of the very few tax planning strategies that solely benefits the taxpayer.

Kelowna Tax Services pension income splitting

If you take a look at the information provided with your annual tax return form issued by the Canada Revenue Agency (CRA), you’ll notice that the benefits of pension income splitting aren’t at the forefront. Plus, the form needed to start a pension income splitting strategy isn’t included in the General Income Tax Return package.  You must order it from the CRA or download it from the website.

The Income Tax and Benefit Guide issued by the CRA for 2017 returns does mention the pension income splitting option but it only explains the filing process with no listed of benefits. So, unless you’re knowledgeable in this area, it’s very unlikely that you will proceed which means opportunities and money are being left on the table which could significantly reduce tax bills.

Dividing income between spouses lowers tax bills because Canada’s tax system is a “progressive” tax system, in which the rate of tax levied as income rises.

To explain, the first $46,000 of 2017 taxable income attracts a combined federal-provincial rate of around 25%. The next $46,000 of such income, however, is taxed at a rate of just under 35%. When taxable income exceeds $142,000, the tax rate can be 50%.  Although every provincial rate varies, nearly all provinces and territories increase the tax rate as income increases.  Alberta is an exception with a flat 10% tax rate on all individual taxable income; the federal rates increase as income rises as with other provinces and territories.

Dividing income allows a greater proportion of that income to be taxed at lower rates and the total tax payable will be reduced.  Because of this, our tax laws include a set of rules known as the “attribution rules”.  They prevent strategies to divide income in this way. Pension income splitting is a government-sanctioned exception to those attribution rules.

When it comes to pension income splitting, taxpayers who receive private pension income during the year are entitled to allocate up to half that income with a spouse for tax purposes.  A private pension income includes any pension received from a former employer, payments from an annuity, an RRSP, or a registered retirement income fund (RRIF) and the recipient is over the age of 65.

Government source pensions, like payments from the Canada Pension Plan, Quebec Pension Plan, or Old Age Security payments do not qualify for pension income splitting.

Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032(E)17, Joint Election to Split Pension Income for 2017, with their annual tax return. That form can be found on the CRA website, ordered by calling 1-800-959 8281 or Kerr & Company, Kelowna tax services, can assist you.

Since this strategy affects both spouses’ income and their tax liability, the election must be made and the form filed by both spouses. The spouse who actually receives the pension income must deduct from their income what was allocated to his or her spouse. That deduction is taken on line 210 of their return for the year.

The spouse to whom the pension income is being allocated must add that amount to his or her income on the return, this time on line 116.

In order to provide the best Kelowna tax services, we suggest planning the pension income splitting sooner than later.  By the time spring tax season gets here, it will be too late to reduce taxes for the 2017 tax year.  However, if this is something that may benefit you and your spouse, contact us now so that we can get a tax planning strategy in place now so that you don’t miss out on opportunities in 2019.

Kelowna Accountants

Tax Planning Tips for Your 2017 Return

Tax planning should be a year-round affair. But as tax season approaches, it is a particularly good time to review your personal finances and take advantage of any tax planning opportunities that may be available to you.  At Kerr & Company, your Kelowna tax planning experts, we are dedicated to providing our clients with the best income tax return possible.

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We’ve put together a list a 2017 tax planning tips:

1) Certain expenditures made by individuals by December 31, 2017 will be eligible for 2017 tax deductions or credits including:

  • moving expenses
  • child care expenses
  • charitable donations
  • political contributions
  • medical expenses
  • alimony
  • eligible employment expenses, union, professional, or like dues
  • carrying charges and interest expense

Ensure you keep all receipts that may relate to these expenses.

 

2) If you own a business or rental property, consider paying a reasonable salary to family members for services rendered.

Examples of services include:

  • website maintenance
  • administrative support
  • janitorial services.
  • Salary payments require source deductions (such as CPP, EI and payroll taxes) to be remitted to CRA on a timely basis, in addition to T4 filings

 

3) A senior whose 2017 net income exceeds $74,788 will lose all, or part, of their Old Age Security. Senior citizens will also begin to lose their age credit if their net income exceeds $36,430. Consider limiting income in excess of these amounts if possible. Another option would be to defer receiving Old Age Security receipts (for up to 60 months) if it would otherwise be eroded due to high income levels.

 

4) You have until Monday, March 1, 2018 to make tax deductible Registered Retirement Savings Plan (RRSP) contributions for the 2017 year. Consider the higher income earning individual contributing to their spouse’s RRSP via a “spousal RRSP” for greater tax savings.

 

5) Individuals 18 years of age and older may deposit up to $5,500 into a Tax-Free Savings Account in 2017. Consider a catch-up contribution if you have not contributed the maximum amounts for prior years. Contribution room can be found online, on CRA’s My Account.

 

6) A Canada Education Savings Grant for Registered Education Savings Plan contributions equal to 20% of annual contributions for children (maximum $500 per child per year) is available. In addition, lower income families may be eligible to receive a Canada Learning Bond.

 

7) A Registered Disability Savings Plan (RDSP) may be established for a person who is under the age of 60 and eligible for the Disability Tax Credit. Non-deductible contributions to a lifetime maximum of $200,000 are permitted. Grants, Bonds and investment income earned in the plan are included in the beneficiary’s income when paid out of the RDSP.

 

8) Consideration may be given to selling non-registered securities, such as a stock, mutual fund, or exchange traded fund, that has declined in value since it was bought to trigger a capital loss which can be used to offset capital gains in the year. Anti-avoidance rules may apply when selling and buying the same security.

 

9) Consider restructuring your investment portfolio to convert non-deductible interest into deductible interest.  It may also be possible to convert personal interest expense, such as interest on a house mortgage or personal vehicle, into deductible interest.

 

10) Canada Pension Plan (CPP) receipts may be split between spouses aged 65 or over (application to the CRA is required). Also, it may be advantageous to apply to receive CPP early (age 60-65) or late (age 65-70).

 

11) Teacher and early childhood educators – A federal non-refundable tax credit of 15% on purchases of up to $1,000 of eligible school supplies by a teacher or early childhood educator used in the performance of their employment duties may be available. Receipts for school supplies will be required.

 

12) Home accessibility tax credit – A federal non-refundable tax credit of 15% on up to $10,000 of eligible expenditures (renovations to a qualified dwelling to enhance mobility or reduce the risk of harm) may be available each calendar year, if a person 65 years or older, or a person eligible for the disability tax credit, resides in the home.

 

13) Did you incur costs to access medical intervention required in order to conceive a child which was not previously allowed as a medical expense? Due to a change in law, some of these expenses for the previous 10 years may now be eligible (amounts incurred in 2007 must be claimed by the end of 2017).

 

14) For individuals who have not yet claimed charitable donations, consider making a donation of up to $1,000 in order to get a “super charged” donation credit.

 

15) A number of employment insurance (EI) changes have been enacted effective December 3, 2017. These include a new caregiving benefit for up to 15 weeks for those who are temporarily away from work to support or care for a critically ill or injured family member, the option to extend the parental benefit for up to 18 months (from the current 12 months) and the ability to claim EI benefits up to 12 weeks before a mother’s due date (from the current 8 weeks).

 

16) If EI premiums were paid in error in respect of certain non-arm’s length employees, a refund may be available
upon application to CRA.

 

17) Consider purchasing assets eligible for capital cost allowance (CCA) before the year-end. A half-year of depreciation deduction is allowed for most assets even if it was purchased just before the year-end.

 

18) Effective July 1, 2017, self-employed commercial ride-sharing drivers (such as Uber drivers), have been required to register for (regardless of their total annual revenues), collect, report and remit GST/HST.

 

19) Employers of eligible apprentices are entitled to an investment tax credit. Also, a $1,000 Incentive Grant per year is available for the first and second year as apprentices. A $2,000 Apprenticeship Completion Grant may also be available.

 

20) If income, forms, or elections have been missed in the past, a Voluntary Disclosure to the CRA may be available to avoid penalties. Effective January 1, 2018, CRA has proposed to tighten the program so greater relief may be available if disclosure is made before the end of the year.

 

21) Are you a U.S. Resident, Citizen or Green Card Holder? Consider U.S. filing obligations with regards to income and financial asset holdings. Filing obligations may also apply if you were born in the U.S. Information exchange agreements have increased the flow of information between the CRA and the IRS. Collection agreements enable the CRA to collect amounts on behalf of the IRS.

 

Kelowna Tax Planning

2017 REMUNERATION

Higher levels of personal income are taxed at higher personal rates, while lower levels are taxed at lower rates. Therefore, individuals may want to, where possible, adjust income out of high-income years and into low-income years. This is useful if the taxpayer is expecting a large fluctuation in income, due to, for example:

  • taking maternity/paternity leave;
  • receiving a large bonus/dividend; or
  • selling a company or investment assets.

 

In addition to increases in marginal tax rates, individuals should consider other costs of additional income. For example, an individual with a child may lose financial support in the form of reduced Canada Child Benefit (CCB) payments. Likewise, excessive personal income may reduce receipts of OAS, GIS, GST/HST credit and other provincial/territorial programs.

 

There are a variety of different ways to legally smooth income over a number of years to ensure an individual is maximizing access to the lowest marginal tax rates.

For example:

  • In owner/managed companies, owners may take more, or less, earnings out of the company.
  • Realizing investments with a capital gain/loss.
  • Deciding whether to claim RRSP contributions made in the current year, or carry-forward the contributions.
  • Withdrawing funds from an RRSP to increase income. Care should be given, however, to the loss in RRSP room based on the withdrawal.
  • Deciding on whether or not to claim CCA on assets used to earn rental income.

While the above is generally true, in certain cases some individuals may wish to pay out additional dividends in 2017.

 

Effective in 2018, there are proposals to increase the tax cost of dividends paid out to shareholders of a corporation that do not “meaningfully contribute” to the business. As such, individuals who may be subject to this higher tax rate in future years may consider increasing dividend payments in 2017.

 

Prior to paying increased dividends, consideration should be given to a number of factors (in addition to the items noted above related to increases in income), such as the impact on the business operations, cashflow, and other agreements (like bank covenants), and whether the dividend can be paid under corporate law.

 

Three different types of dividends can be paid from a corporation depending on the attributes and earnings of a corporation: eligible, non-eligible and tax-free capital dividends. Due to tax rate changes, the tax cost of non-eligible dividends will likely be increasing in 2018 and 2019.

 

As such, some may consider declaring non-eligible dividends in 2017 to access current tax rates. Changes in provincial/territorial rates may also impact the above decision.

 

Year-end planning considerations not specifically related to changes in income levels and marginal tax rates include:

 

1) Corporate earnings in excess of personal requirements could be left in the company to obtain a tax deferral (the personal tax is paid when cash is withdrawn from the company). The effect on the “Qualified Small Business Corporation” status should be reviewed before selling the shares where large amounts of capital have accumulated.

 

2) Consider paying taxable dividends to obtain a refund from the “Refundable Dividend Tax on Hand” account in the Corporation.

 

3) Individuals that wish to contribute to the CPP or a RRSP may require a salary to create “earned income”. RRSP contribution room increases by 18% of the previous years’ “earned income” up to a yearly prescribed maximum ($26,010 for 2017; $26,230 for 2018).

 

4) Dividend income, as opposed to a salary, will reduce an individual’s cumulative net investment loss balance thereby possibly providing greater access to the capital gain exemption.

 

5) Recent tax changes may make it costlier to earn income in a corporation from sales to other private corporations in which the seller or a non-arm’s length person has an interest. As such, consideration may be given to paying a bonus to the shareholder and specifically tracking it to those higher taxed sales. Such a payment may reduce the total income taxed at higher rates.

 

6) Proposed changes to the tax regime will likely require more careful tracking of an individual shareholder’s labour and capital contribution to the business, as well as risk assumed in respect of the business. Inputs should be tracked in a permanent file.

 

7) If you are providing services to a small number of clients through a corporation (which would otherwise be considered your employer), CRA could classify the corporation as a Personal Services Business. There are significant negative tax implications of such a classification. In such scenarios, consider discussing risk and exposure minimization strategies (such as paying a salary to the incorporated employee) with your professional advisor.

Our dedicated Kelowna tax planning firm assists with a wide variety of personal and corporate tax planning services. Personal tax planning includes tax minimization and/or deferral and may involve succession planning, income splitting, investment structuring, tax shelter advice, and more.

Please contact our office to discuss a tax plan specific to your needs.  We look forward to speaking with you!

Kelowna Tax Planning Accountants

 

2017 PERSONAL INCOME TAX RETURN CHECKLIST

Are you wondering what documents you need to prepare your tax return?  At Kerr & Company, Kelowna accounting firm, we are committed to providing you with the largest income tax return possible. To ensure we find every deduction, we’ve put together this handy checklist so you’re fully prepared with every document needed before we file your tax return.

Kelowna Income Tax Checklist

SECTIONS:

A. Information – All Clients Must Provide

B. Additional Information – New Clients Must Provide

C. Questions to Answer

D. Other

_____________________________________________________________________

 

A. Information – All Clients Must Provide

 

1. All information slips, such as:

T3, T4, T4A, T4A(OAS), T4A(P), T4E, T4PS, T4RIF, T4RSP, T5, T10, T2200, T2202, T101, T1163, T1164, TL11A, B, C and D, T5003, T5007, T5008, T5013, T5018 (Subcontractors), and corresponding
provincial slips.

2. Details of income for which no T‐slips have been received, such as:

 other employment income (including any tips or gratuities received, details on stock option plans and Election Form T1212)

 business, professional, partnership, and rental income (including all amounts received from the sharing economy, such as Airbnb, VRBO, Uber, etc)

 alimony, separation allowances, child maintenance (including divorce/separation agreement)

 pensions (certain pension income may be split between spouses)

 interest income earned but not yet received (such as amounts from Canada Savings Bonds, Deferred
Annuities, Term Deposits, Treasury Bills, Mutual Funds, Strip Bonds, Compound Interest Bonds)

 scholarships, fellowships, and bursaries

 any other income received (e.g. director fees, executor fees, etc).

3. Details of other investments, such as:

 capital gains/losses realized (this may be obtained, in some circumstances, from your investment advisor)

 real estate, or oil and gas investments – including financial statements

 bitcoin or other cryptocurrency transactions

 any other investments

4. Details of other expenses, such as:

 employment related expenses – provide Form T2200 – Declaration of Conditions of Employment, signed by
employer (where expenditures have a personal component, provide an allocation of personal versus
employment usage)

 business, professional, investment and rental expenses (including capital purchases, such as vehicles, and
equipment)

 home office expenses (with respect to employment, professional or other business income)

5. Details and receipts for other deductions and tax credits, such as:

 moving expenses

 child care expenses

 alimony, separation allowances, child maintenance (including divorce/separation agreement)

 adoption related expenses

 interest paid on qualifying student loans

 professional and union dues

 medical expenses for you and any dependent persons

 charitable donations and political contributions

 public transit passes acquired (amounts incurred after June will no longer be eligible for the federal credit, although some provinces have parallel credits)

 clergy residence deduction information (including Form T1223)

 tuition fees for both full‐time and part‐time courses for you or a dependant – including mandatory ancillary fees, and Forms T2202, TL11A, B, C and D where applicable (note that the federal education and textbook tax credits have been eliminated for 2017)

 disability supports expenses (speech, sight, hearing, learning aids for impaired individuals and attendant care expenses)

 mining tax credit expenses

 Registered Retirement Savings Plan and any other pension plan contributions and withdrawals (including withdrawals and repayments for the Home Buyers Plan and Life Long Learning Plan)

 film and video production expenditures eligible for a tax credit

 tools acquired by tradespersons and eligible apprentice mechanics

 scientific research and experimental development expenses

 Home Accessibility Tax Credit – Certain expenditures (up to $10,000) may be eligible for a tax credit if made in relation to a renovation or alteration of your home to enhance mobility or reduce the risk of harm for an individual who is either, eligible for the Disability Tax Credit, or 65 years of age or older at December 31, 2017. Examples of eligible expenditures include amounts relating to wheelchair ramps, walk‐in bathtubs, wheel‐in showers and grab bars.

 Eligible Educator School Supply Tax Credit – If you are a teacher or early childhood educator, please provide receipts (up to $1,000) for eligible school supplies purchased in the year. An eligible supply expense is an amount paid in the year for supplies used or consumed in the school or regulated child care facility in the performance of your employment. Supplies include consumable goods such as construction paper, flashcards, items for science experiments, art supplies, and stationary items, and durable goods limited to games, puzzles, books, containers and educational support software. Please also provide a certification from your employer attesting to the eligible supplies expense.

 

6. Details on the disposition of your principal residence or other real property. If disposing of your principal residence, please provide:

proceeds of disposition, a description of the property, and the year the property was acquired. If disposing of other real property, please provide the cost of the property in addition to the requirements listed above. This is required even if there is no gain on the disposition of the property. In addition, please indicate if you have a change‐in‐use of your property. This could include, for example, converting some or all of your principal residence into an income earning property, such as a rental suite.

 

7. Name, address, date of birth, social insurance number (SIN), and province of residence on December 31, 2017, if changed in the current year.

 

8. Personal status – single, married, common‐law, separated, divorced, or widowed. If there has been a status change in the year, please provide the date of the change.

 

9. List of dependants/children including their income, birth date, and SIN.

 

10. Details regarding residence in a prescribed area which qualifies for the Northern Residents Deduction.

 

11. Details on 2017 income tax installments, or payments of tax.

 

12. 2016 Notice of Assessment/Reassessment and any other correspondence from CRA (including correspondence received after the filing of this personal tax return).

 

13. Details of foreign property owned at any time in 2017 including cash, stocks, trusts, partnerships, real estate, tangible and intangible property, contingent interests, convertible property, etc.

Required details include:

description of the property, related country, maximum cost in the year, cost at year‐end, income, and capital
gain/loss for each particular property.

For property held in an account with a Canadian securities dealer or Canadian trust company, please provide the
country for each investment, fair market value of the investments at each month‐end, income or loss on the
property, and gain/loss on disposition of the property.

 

14. Details of income from, or distributions to, foreign entities such as foreign affiliates and trusts.

 

15. Copy of any foreign tax returns filed and any associated tax assessments.

 

16. If we are not preparing your spouse or common‐law partner’s personal tax return, please provide their return for review and tax planning.

 

17. Internet Business Activities

If you have business, professional, farming, or fishing income, please indicate whether you have Internet business activities. According to CRA, Internet business activities include any activity where you earn income from your webpages, websites, or Apps. Information only webpages and websites like directories or ads will not generally trigger this information requirement.

If you have Internet business activities, please provide:

 The number and address of webpages or websites that your business generates income from. If you have
more than 5, provide the 5 that generate the most income

 The percentage of income generated from the Internet (if you do not know the exact percentage, provide
an estimate)

 

B. Additional Information – New Clients Must Provide

 

1. All CRA correspondence for the past three years.

 

2. Details of previously claimed capital gain exemptions, business investment losses and cumulative net investment loss accounts.

 

3. A listing or copy of receipts for significant capital assets purchased previously, which are currently held.

 

4. Details of carry‐forward amounts from previous years (ex. losses, donations, forward averaging amounts, RRSP).

 

 

C. Questions to Answer

 

1. Are you a U.S. citizen, Green Card Holder, or were you, or your parents born in the United States? You may have U.S. filing obligations.

 

2. Are you an aboriginal person? Special tax rules may apply.

 

3. Are you or any of your dependants disabled?

If so, provide Form T2201, Disability Tax Credit Certificate. The transfer rules allow claims for certain dependent relatives. In addition, are you, or would you like to provide support to a disabled person? Tax planning opportunities may be available, such as the establishment of a Registered Disability Savings Plan.

Persons with disabilities may also receive tax relief for the cost of disability supports (e.g. sign language services,
talking textbooks, etc.) incurred for the purpose of employment or education. If you or your dependents are
disabled but do not have a T2201 Form, please provide details so we can explore whether you are eligible for
special credits or benefits.

 

4. Are you the caregiver for any infirm family members? Did you provide in‐home care for an infirm dependent relative?

 

5. If you have children up to the age of 17, have you received the Canada Child Benefit (CCB)? The CCB is an income tested benefit and therefore may not be provided to certain higher income individuals who previously received the Universal Child Care Benefit which ceased in mid‐2016.

 

6. Have there been any other significant life events in the past year, such as the death or impairment of a loved one? There can be tax planning opportunities.

 

7. Did you incur costs to access medical intervention required in order to conceive a child which was not previously allowed as a medical expense?

Amounts may be claimed in respect of any such expense for the previous 10 years (if amounts were incurred in 2007, a claim must be made by the end of 2017).

 

8. Did you purchase a new home in 2017? If so, you may be eligible for the new residential property GST/HST rebate. Also, are you a first‐time home buyer in 2017? A federal tax credit based on $5,000 (@15% = $750) may be available.

 

9. Have you spent more than 200 hours acting as a volunteer firefighter or a search and rescue volunteer? You may be eligible for a federal tax credit.

 

10. Have you made any contributions to a gifting tax shelter?

 

11. Did you receive any significant prizes or awards from your, or a related person’s place of employment?

 

12. Did you receive a retroactive lump‐sum payment over $3,000 (for example, spousal support)? In certain cases, some tax relief may be available.

 

13. Do you want your tax refund deposited directly into your account at a financial institution?

 

14. Do you authorize CRA to give your name, address, date of birth, and citizenship to Elections Canada to update the National Register of Electors?

 

 

D. Other

 

1. Instalments required for 2018?

A Pre‐Authorized Debit Arrangement is an online service‐payment option which authorizes CRA to withdraw a pre‐determined payment amount directly from a bank account on a specific date to pay taxes. This may help avoid penalties on late and/or missing installment payments.

2. MyCRA mobile App

This web app allows you to access and view key portions of your tax information such as your notice of assessment, tax return status, benefit and credit information, and RRSP and TFSA contribution room.

3. Canada Job Grant

2/3rds of certain employee training courses may be eligible for this grant. If interested in improving your skills, ask your employer about this opportunity.

4. NEW! CRA Online Services – Account Alerts

Individuals can register with CRA to be notified by email when CRA’s record of an individual’s address has changed, banking information for direct deposit has changed, or if mail sent by CRA was returned.

5. NEW! CRA Online Services Link between CRA’s My Account and My Service Canada Account

Individuals can now access these two accounts through a single sign‐in session. When switching between Accounts, users must authorize their SIN to be transmitted to the other department. My Service Canada administers a number of programs such as Employment Insurance, Old Age Security, Guaranteed Income Supplement and Canada Pension Plan.

6. Additional provincial/territorial credits and programs may be available.

 

If you need help with any of the above, please contact us.  We’re here to help make tax season as stress-free as possible.

Kelowna Accountants

RRSP Contributions and TFSA Contributions – The Rules You Need to Know for 2018

According to Statista, 21% of people make the New Year’s resolution to focus on financial goals, second only to fitness and health goals. For most individuals, a new calendar year is the start of a new tax year and serves a fresh opportunity to contribute to registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). As Kelowna tax pros, we at Kerr & Company, want to ensure our clients are making the most of these plans and fulfill their resolutions.

Kelowna taxes RRSP contributionsThe following is an outline of the contribution limits and deadlines for both RRSPs and TFSAs for the 2018 calendar year:

 

RRSPs

It’s common for taxpayers to focus on RRSPs this time of year as the last opportunity to contribute to the 2017 tax year is fast approaching. Any RRSP contribution to be claimed on your 2017 tax return must be made on or before Thursday, March 1, 2018.

This deadline is the same for all individuals.

The maximum allowable contribution differs.

To calculate how much a taxpayer can contribute for 2017, one must look at their income from the 2016 tax year. The current year contribution cannot exceed 18% of that 2016 income figure, to a specified maximum.

 

For example:

An individual who earned $65,000 in 2016 has a current contribution limit for 2017 of $11,700 ($65,000 x 18%).

However, all taxpayers are subject to an overall limit of $26,010 regardless of how much income was earned.

 

Many Canadians do not take advantage of the yearly maximum allowable RRSP contribution. In those cases, the shortfall is carried forward, and they can contribute more the following year. Canada Revenue Agency (CRA) does a great job of tracking the carryforward and the current year allowable contribution for each taxpayer. Their calculations can be found on page 3 of your Notice of Assessment from the previous year (2016).

Can’t find your Notice of Assessment? Sign up for CRA’s online service, My Account.

Taxpayers can use their online banking ID and password on the CRA site to log into the My Account feature. There, you can access personal tax information, including any allowable RRSP contribution amount.

Lastly, you can call the CRA’s Tax Information Phone Service (TIPS) line at 1-800-267 6999, or to the Individual Income Tax Enquiries Line at 1-800-959-8281, to obtain the same information.

 

TFSAs

The timelines and deadlines for TFSAs are much more flexible than those governing RRSP contributions. A contribution to a TFSA can be made at any time of the year. Plus, contributions not made during the current year can be carried forward and made in any future year.

Calculating the total TFSA contribution room is significantly more complex than figuring out one’s allowable RRSP contribution amount.

For one, the maximum TFSA amount has changed several times (increasing and decreasing) since the program started in 2009.

Second, individuals who withdraw funds from a TFSA can re-contribute those funds, but not until the year following the one in which the withdrawal is made. When a taxpayer has several TFSA accounts, a history of making contributions, withdrawals, and re-contributions, it can be difficult to determine just where that taxpayer stands concerning their maximum allowable TFSA contribution.

A Notice of Assessment won’t be of help as the CRA no longer provides TFSA contribution information on that form. Information on one’s current year TFSA contribution limit can, however, be obtained from the CRA website, from the TIPS line at 1-800-267-6999 or its Individual Income Tax Enquiries line at 1-800-959- 8281.

Please note, information for your current year TFSA contribution limit won’t be available through the TIPS line until mid-February.

For those who have RRSPs and TFSAs, and want to take full advantage of these plans, please contact us.

Kelowna Taxes

Understanding the CPP Post-Retirement Benefit

At Kerr & Company, Kelowna tax accountants, we help various clients with retirement planning whether they’re in their 30s and planning long-term or quickly approaching retirement with questions on when to start retirement benefits such as the Canada Pension Plan (CPP) and Old Age Security (OAS).  With the right systems in place, as early as possible, the transition to retirement can be smooth and uncomplicated regarding taxes and benefits. Unfortunately, for many, the transition can be a confusing time.

The traditional idea of working full-time until age 65, leaving the workforce completely to live the rest of one’s life solely on government-sponsored and private income has changed in the last couple of decades due to changes in the Canadian retirement benefits system.

Kelowna Tax Accountants Retirement

These changes have affected both the Canada Pension Plan (CPP) and Old Age Security (OAS) by increasing the flexibility of those programs by giving Canadians more options as to when they’d like to receive their CPP and OAS.

As a result of this flexibility, the system has become more complex with more options including the relatively new CPP Post-Retirement Benefit (PRB). As Kelowna tax accountants, Kerr & Company are experienced in dealing with all retirement benefits and will explain every option available to you.

Canadians and their employers contribute to the CPP system annually based on your yearly income. The contributions made between age 18 and the time CPP benefits kick in are used to calculate the monthly CPP payment.  You may choose age 60 for the payments to start or defer them any time until 70 years of age. If the payments are deferred, the total amount of the benefit increases per month.

Until 2012, Canadians who had started receiving CPP retirement benefits were not allowed to continue contributing to the CPP system even if they were still in the workforce.  Meaning that there was no way to increase the total benefit amount. However, a rule was altered to allow individuals who continued to work while receiving the CPP retirement benefit could also continue to contribute to the CPP.  This would increase the monthly CPP retirement benefit received and was named the CPP post-retirement benefit or the PRB.

If you continue to work but choose to begin CPP retirement benefits, you will be subject to these rules:

You can change your mind and resume contributions but only once per calendar year.  To make the change, section D of Form CPT30 must be filled out and sent to the employer(s) as well as the original sent to the CRA.

  • If you are over the age of 70 and are still working, you cannot contribute to the CPP.

With this system, CPP recipients 65 years of age and under who are still working, and those between 65 and 70 who choose to defer receipt of their payments will continue to earn credits which will increase with each year’s contributions.

If you continue to work and make CPP contributions while also receiving CPP retirement benefits, the amount of any CPP post-retirement benefit earned will automatically be calculated by CRA.  They will inform you of any increase in the monthly CPP retirement benefit each year.

The PRB will be paid automatically the year after the contributions are made, effective January 1st of every year. The CRA requires information regarding your employer’s contributions, so the first annual payment of the PRB is typically made in April.  This first payment will include anything owed from January.  After this initial payment, the PRB will be paid monthly.  The amount of the PRB is added to the individual’s CPP retirement pension and issued as a single monthly payment.

For CPP retirement benefit recipients, the options are limited.  Those who are under the age of 65, contributions will be automatically deducted from your paycheques.  If you are over age 70, no such contributions are allowed.

Those individuals in the middle group (age 65-70) may require the most help from Kerr & Company, Kelowna tax accountants.  Do you fall into this age category? You will need to decide whether it makes sense, in your specific and personal circumstances, to continue making contributions to the CPP.

Please don’t hesitate to contact us at Kerr & Company for a free consultation.  The rules governing the PRB can be complex.  Use our expertise as Kelowna tax accountants so you don’t have to worry about the technical details. Together, we will come up with a strategy that benefits you and allows you to enjoy this exciting time in your life.

Visit us today at www.kerrtaxcpa.com

 

 

Kelowna Tax Accountants Provide Important Old Age Security Information

Baby Boomers, who are now retired or close to it have always relied on the fact that they would receive Old Age Security benefits. For many, many years, the perception has been that when a person turns 65 these benefits automatically kick in. It is no longer just the age that is considered as the start date as retirees now face choices as to when they want Old Age Security benefits to commence.

For the past four years, Canadians have been able to defer Old Age Security benefits for months or even years past the age of 65.  It can be a confusing time because any decision made to defer these payments is irreversible. Speaking with a Kelowna tax accountant will help you decide if waiting to receive OAS is a good option for you.

Under the current rules, you can wait for up to 5 years to receive benefits.  The amount of the benefit increases by 0.6% per month the payments have been deferred.  Therefore, if you were to defer the benefit for the full 5 years, the monthly payment you would eventually receive is increased by 36%.  Again, your Kelowna tax accountant, Kerr & Company, is qualified to discuss your options as the choice to defer or not defer is a personal decision and varies from person to person.

Kelowna tax accountants information on Old Age Security

As you’re probably aware, the federal government offers two programs which provide income to Canadians during the retirement years:  the Canada Pension Plan (CPP) and Old Age Security (OAS).

Canadians fund CPP by making contributions throughout their working lives.

OAS is a non-contributory plan in which benefits are paid by the federal government.

Your eligibility for OAS benefits will be determined by your age and number of years you’ve resided in Canadian.  If you’re 65 years old and have lived in Canada for a minimum of 40 years, after the age of 18, you will be eligible to receive maximum benefit. Furthermore, those born before July 1, 1952, and were residing in Canada on July 1, 1977, may also receive full benefits.

Kerr & Company, Kelowna tax accountants, follow some general considerations to help determine when OAS benefits should start:

 

1. Total income required

We first need to determine how much total income is required at the age of 65.  Other sources of income such as CPP, an employer-sponsored pension plan, RRSPs and RRIFs will also be considered when determining how much income you need to meet both current and future financial needs.

 

2. Tax implications

Tax implications need to be addressed along with knowing income tax thresholds and cut-offs which tax accountants can help structure. The first federal tax bracket includes income up to $45,916 and taxes that income at 15%.  The second bracket is taxed at 20.5%.

In 2017, the Canadian tax system provides a non-refundable tax credit of $7,225 for taxpayers over the age of 65 at the end of the tax year. That credit is reduced once the taxpayer’s net income for the year exceeds $36,430.  The credit is NOT available to taxpayers with a net income over $84,597.

But, you may be able to receive a quarterly GST/HST refundable tax credit.  The full credit is payable to individual taxpayers whose family net income is less than $36,429.

Kelowna tax accountants should also inform you of the “OAS recovery tax”.  If you are receiving Old Age Security benefits and had an income over $73,756 in 2016, you are required to repay a portion of those benefits.  OAS entitlement for that time period is entirely eliminated if income for 2016 was more than $119,615.

 

3. Sufficient Income for Lifestyle

You’ve worked hard your whole life and when retirement time comes, you should be able to finance a comfortable lifestyle.  By determining the total income required and the tax implications you may face, Kelowna tax accountants can establish a sufficient income, help minimize taxes, potential loss of tax credits or the need to repay OAS.

You may be reaching the usual retirement age of 65 but it is becoming more and more common for Canadians to remain in the workforce, even part-time.  If this is your wish, and your employment income finances your chosen lifestyle, you may want to postpone OAS.

 

4. Determine CPP Retirement Benefits

If you’ve worked in Canada your entire life, then you’ve likely paid into CPP and are eligible to receive benefits.  These benefits can be received as early as age 60, however, these too can be deferred and start anytime before age 70.

Similarly to OAS, CPP benefits increase each month that they are postponed and those who are eligible for both should consult with Kelowna tax accountants.

 

5. Use RRSP Savings Efficiently

Many Canadians have saved for retirement through a private registered retirement savings plan (RRSP).  There are options available to you regarding RRSPs as well.  You can withdraw money from your RRSP at any age but you must collapse your RRSP by the end of the year of age 71 and start receiving income from those plans.

Options include converting the RRSP into a registered retirement income fund (RRIF) or purchasing an annuity.  Income from the converted RRSP funds will start the following year.  Those clients who have a significant amount of RRSP savings will have an additional taxable income for each year after they turn 71 and this may affect the start date in which you want to start receiving OAS.

 

As Kelowna tax accountants, our goal is to structure retirement income based on financial and tax considerations, however, we understand that every client is different. Personal preferences and your own life goals are extremely important.  Health issues, the desire to travel early in retirement rather than later, a move to another country, and significant purchases can alter one’s plans and require more income sooner.

Knowing your options now will help ease concern.  These options bring a level of flexibility that benefits your quality of living in retirement but these options can also increase complexity especially when individuals have multiple sources of income.

A retirement income calculator can be found here and provides, based on the information given, the amount of OAS payable at each age.  When facing difficult financial and tax decisions, please don’t hesitate to contact Kerr & Company, your trusted Kelowna tax accountants.

www.kerrtaxcpa.com

Common Small Business Questions Answered by Kelowna Accounting Firm

At Kerr & Company, chartered professional accountants, we not only take care of accounting tasks for your Kelowna small business but we also offer business advisory services, bookkeeping, accounting software training, tax planning and much more.  If you want to stay on CRA’s good side, work with a Kelowna accounting firm, like Kerr & Company to ensure all of your documents are in order, taxes are paid on time and your bookkeeping is top notch.

Kelowna Accounting Small Business

We work with a variety of small business owners every day and have put together some of the most common questions heard by our Kelowna accounting professionals:

 

1. Do I need a business number?

You only need a business number if you are registering for any government program accounts such as GST/HST, payroll deductions, import/export, corporate income tax and excise duty. You can read more on the nine-digit business number here.

 

2. Do I really need to keep all receipts?

Keep any and all receipts that have anything to do with your business.  It is much easier to toss out what has been determined as unnecessary tax receipts than to hunt down receipts you may have thrown out months ago. Self-employed people are much more likely to be audited, so good records and an experienced Kelowna accounting team are essential.

 

3. Do I need to pay into CPP?

You will have to start paying CPP once your net income from your business is more than $3,500.  Also, it will be doubled the rate than if you were a regular employee of a company.  As your Kelowna accounting professionals, we are experienced in knowing all deductions available to you and your small business including a non-refundable tax credit for regular contributions to CPP.

 

4. My business is small; do I need a GST number?

Once your business revenues reach $30,000, you are required to register for the GST/HST. However, in many cases, it is advantageous to register even if your revenue is less than $30,000 so that you can claim input tax credits for the GST/HST you’ve had to pay to run your business.

 

5. Can I claim losses?

Losses on your business can be used to offset other income and if the losses are more than your income from other sources then you may be able to claim a non-capital loss.  This non-capital loss can be carried forward to future years when your income has increased.

 

6. Keeping track of mileage is time-consuming; can I use a flat rate?

Keeping a mileage logbook is a must.  There’s even an app for that!  If you use your vehicle to help run your business, then mileage tracking is essential. What’s the good news?  Besides the app, there is a new simplified method that we can discuss but you are still required to keep a logbook for a year before you can use the simplified method.

 

7. What are installment payments and do I have to make them?

Canada Revenue Agency wants the tax owed to them and they will request that you pay installments rather than an annual payment if the tax owed is from any two of the last three years.  Failing to make these payments may result in interest charges.  At Kerr & Company, we take great pride in our Kelowna accounting firm’s ability to help our clients through the installment payment process and help prevent extra charges. Tips on how to respond to a first installment reminder letter are found on our blog HERE.

 

8. I work at home so can I claim my mortgage payments?

The principle is not a deduction and the amount you can deduct depends on the square footage of your home office.  The home office needs to be clearly separated from the rest of the home.  The office space must also be used regularly for business-related meetings or consistent everyday work in order to claim a portion of your mortgage as a home office expense.

Kelowna Accounting Home Office

 

9. How much money should I be putting aside for taxes?

Generally, the self-employed should save between 30 to 40 percent of their income for taxes. It is always a good idea to speak with your Kelowna accounting firm to get expert advice for your specific business.  But as a general rule, it’s better to have saved a bit more than you may need than to come up with potentially thousands of dollars at tax time.

 

10. If I’m self-employed, do I have to pay EI premiums?

Registering for the EI program is optional. EI premiums only cover benefits regarding maternity, paternal, sickness and compassionate leave.  It does not provide any benefits or coverage if your business were to fail.

These are just some of the common small business questions we hear in our Kelowna accounting firm, Kerr & Company.  We understand that each business is unique, every business owner has a different level of experience and every client has their own set of questions.  We are here to help with all of these questions and offer accounting, bookkeeping and many other types of support so that you can excel and grow your business.

To see our full list of services, visit us online at www.kerrtaxcpa.com

Contact us today for a free consultation.