Author Topic: Can"EH"dian Tax - You have questions, I have answers  (Read 112641 times)

K-ice

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #300 on: July 09, 2015, 03:49:58 PM »
As I mentioned I found the following and want to crunch some of my own numbers so I get better asset allocation and “location” for DearWife and DearHusband.

http://www.moneysense.ca/taxes/making-smarter-asset-location-decisions/

Current situation 95K TOTAL:
15K cash
80K in two (yes only 2) Canadian stocks in an un-registered (face punch) joint account owned DW & DH (let’s assume book value 20K so lots of capital gains to pay.) One pays dividends the other doesn’t, both about 40K. Both are low right now but who knows when they will go up or down more.

20K TFSA room each  DW & DH
20K RRSP room  for DW 
80K RRSP room for DH
 
Objective: Create a more balanced portfolio (Vanguard ~couch potato) and transfer into tax advantage accounts. 

http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-Vanguard.pdf

Vanguards I am interested in:
25% VAB (Canadian bond mix)
25% VCN (Canadian stock mix)
25% VXC (Global stock mix)
25% VDY (Canadian dividend stock mix)

Steps:
Sell 20K of the stocks and add to 10K cash
OK now we each have 15K to invest

DW puts 15K into an RRSP:  10K VDY, 5K VAB
DH puts 15K into an RRSP:  10K VXC,  5K VAB

60K remaining in Stocks.

At the end of the year:
Sell another 20K stocks, bundle with new savings ~10K
Again we each have 15K to invest

DW puts 5K into and RRSP: 5K  VXC  (RRSP now full for her)
DW puts 10K into TFSA:  10K VCN 
DH puts 15K into RRSP:  5K VAB,  5K VDY, 5K VCN

New picture January 2016
5K cash
40K 2 Canadian stocks
60K in Vanguard (All in registered accounts!)

Split: 
15K VAB (Canadian bond mix)
15K VCN (Canadian stock mix)
15K VXC (Global stock mix)
15K VDY (Canadian dividend stock mix)

Do the tax rules on ETF work the same as stocks and bonds? I guess what I am asking is are there any general rules that VAB should be RRSP and VDY should be unregistered provided the others are full? Where is the best place to build up VXC (global)?

I believe the total 2015 capital gains tax from the 40K stocks that we sell is roughly = ((40-10)/2 )*40% = 6000
But this will be more than offset by reinvesting  20K+30K = 50K in an RRSP.

Should we be putting more into our TFSA? DH’s parents have him convinced RRSPs are a waste of time because you still pay the tax later.  I see them as a beautiful way of offsetting the capital gains at this point in time.  My guess/hope is that our retirement income is about the same as today.

Thanks for looking into this. I am sure there are many opinions on my allocation. I am still Canadian stock heavy. I can tweek 5K here or there, it's not that I don't care but I feel selling a bit of the risky stocks and the LOCATION is really the most important thing I need to optomise right now.

Thanks Again!!



sammy

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #301 on: July 12, 2015, 09:36:33 PM »
CPA CB,

First I would like to thank you for taking the time to help us navigate around the Canadian tax system to realize it`s benefits.

I have a question around the LCGE exemption for qualified farm property, and I`ll explain my situation:

Currently I have (3) farm properties that I have held for over (2) years solely in my personal name and ran as a sole proprietorship. I will be able to realize about $500k of capital gains upon the sale of these properties, but I want to make sure I fully qualify for the exemption in the eyes of the CRA. The one hang-up I think I`ll have is that I currently am employed with a company that allows me to generate more income from the employer than what I can from my farming proprietorship. What are your thoughts on how I can take advantage of selling these properties and taking advantage of the LCGE, what I see is now up to $1 million as per the 2015 budget.

Thanks in advance.

Cheers,

Sammy

Le Barbu

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #302 on: July 13, 2015, 07:27:02 AM »
As I mentioned I found the following and want to crunch some of my own numbers so I get better asset allocation and “location” for DearWife and DearHusband.

http://www.moneysense.ca/taxes/making-smarter-asset-location-decisions/

Current situation 95K TOTAL:
15K cash
80K in two (yes only 2) Canadian stocks in an un-registered (face punch) joint account owned DW & DH (let’s assume book value 20K so lots of capital gains to pay.) One pays dividends the other doesn’t, both about 40K. Both are low right now but who knows when they will go up or down more.

20K TFSA room each  DW & DH
20K RRSP room  for DW 
80K RRSP room for DH
 
Objective: Create a more balanced portfolio (Vanguard ~couch potato) and transfer into tax advantage accounts. 

http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-Vanguard.pdf

Vanguards I am interested in:
25% VAB (Canadian bond mix)
25% VCN (Canadian stock mix)
25% VXC (Global stock mix)
25% VDY (Canadian dividend stock mix)

Steps:
Sell 20K of the stocks and add to 10K cash
OK now we each have 15K to invest

DW puts 15K into an RRSP:  10K VDY, 5K VAB
DH puts 15K into an RRSP:  10K VXC,  5K VAB

60K remaining in Stocks.

At the end of the year:
Sell another 20K stocks, bundle with new savings ~10K
Again we each have 15K to invest

DW puts 5K into and RRSP: 5K  VXC  (RRSP now full for her)
DW puts 10K into TFSA:  10K VCN 
DH puts 15K into RRSP:  5K VAB,  5K VDY, 5K VCN

New picture January 2016
5K cash
40K 2 Canadian stocks
60K in Vanguard (All in registered accounts!)

Split: 
15K VAB (Canadian bond mix)
15K VCN (Canadian stock mix)
15K VXC (Global stock mix)
15K VDY (Canadian dividend stock mix)

Do the tax rules on ETF work the same as stocks and bonds? I guess what I am asking is are there any general rules that VAB should be RRSP and VDY should be unregistered provided the others are full? Where is the best place to build up VXC (global)?

I believe the total 2015 capital gains tax from the 40K stocks that we sell is roughly = ((40-10)/2 )*40% = 6000
But this will be more than offset by reinvesting  20K+30K = 50K in an RRSP.

Should we be putting more into our TFSA? DH’s parents have him convinced RRSPs are a waste of time because you still pay the tax later.  I see them as a beautiful way of offsetting the capital gains at this point in time.  My guess/hope is that our retirement income is about the same as today.

Thanks for looking into this. I am sure there are many opinions on my allocation. I am still Canadian stock heavy. I can tweek 5K here or there, it's not that I don't care but I feel selling a bit of the risky stocks and the LOCATION is really the most important thing I need to optomise right now.

Thanks Again!!

@ K-ice my personal toughts:

Open an account on adjustedcostbase.ca and fill the information about your 2 Canadian stocks. If they are not crappy stocks, you may sell just a bit of each to get no capital gain. Run some simulations on the calculator using actual price of your stocks. Canadians stocks are tax advantaged in taxables accounts. Dont pay capital gain taxes now just for the purpose of not paying dividends taxes!

I dont know you age, salaries or Mustachian level but this is what I would do to keep it simple. I will assume you are between 25 and 35 and familial salary is 75-100k$. Fill your RRSP every year with available cashflow to get the 40% tax return. Let alone TFSA for now if you cannot take enough RRSP to lower your taxable income under +/-30k$ (each). Buy VXC (or XAW) ONLY until you reach 50k$ each in your RRSP. Then, you may perform a Norberts-Gambits and buy VTI and VXUS to be more tax efficient and lower your MER. Don't bother with VAB, especialy if you carry some debt (car, mortage), I do not believe it worth to be a lender AND a borrower at the same time.

Within 3-5 years from now, your AA will be like 35% canadian (2 stocks), 35%US and 30% international (according to VXC and XAW split). RRSP is the best place to hold some US and international holdings and taxable is pretty much efficient for canadian stocks. You will only suffer from diversification in Canada but it will be trivial in few years from now. If you go through a year with low salary (or early retirement!) then you can sell taxable holdings and take a smaller hit because of the lower tax bracket.

Indexing is not a religion!! If you look at the chart of you 2 stocks, they may go up and down with the VCN chart (use XIC for comparison over many years because it follows the TSX index for a lot longer than VCN). You'll be surprised how they act together most of the time.

Simplicity worth the peace of mind and will gives you the time to learn a lot without making big mistakes. You would end up with only 2 holding for each of you, 1 Canadian stock in taxable account and VXC in RRSP.

Hope this help!
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-MMM

Heckler

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #303 on: July 13, 2015, 09:28:14 AM »
. Still thinking what I should do with the 500$ remaining...

What about 48 bottles of red wine?

For $500, you can make 120 bottles using homebrew kits.

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #304 on: July 13, 2015, 12:22:16 PM »
Don't think I've already asked this...

I sold a house in the UK last year. UK tax year is April 6th-April 5th. I've paid Canadian cap gains on the sale. Now I have to pay UK cap gains.

I'm right in thinking the cap gains get deducted from *last year's* Cdn return (under DTA etc, UK gets dibs because house is in UK), because the sale date is when the liability occurs - not when the tax year ends?

So I file an amendment to 2014 Cdn tax return showing all I pay to the UK, Canada gives me that money back.

Rite?

So - you sold the house in Calendar year 2014?

You're correct in asserting that the UK has the first 'right' on taxation in terms of the capital gains. Did you declare the gains in Canada in 2014?

Now, when you file your amendment, you'll effectively receive a tax credit which is more or less a pro-rata amount of your UK taxes paid. I don't want to get into the logistics of the calculation, but suffice it to say, it isn't a flat rate deduction, it's ground down.

Also, there are a variety of circumstances in which you could claim the principal residence deduction here. Principal residences do not need to be located in Canada, so there's the opportunity here to offset the gains. If you can, you want to claim at least 1 year of PR (so you get 2 years overall due to the 'plus one' rule), and your house in Alberta will be fully covered as well.

Hope this helps!

House sold in Nov I think it was, so Cdn 2014, UK 14-15; yes, tax paid to Canada. Principal res ded - no point AFAIK as it's been a rental since '07 or '08, and the amount paid to the UK is more than that deduction.. I think... I'm happy with what I've paid so far so don't want to get more complex, bad enough with all the currency changes. If it ends up that I get reassessed (likely?) and they want mucho mucho $$$ then I guess I'll go and see a professional and get them to redo the last 5 years, and probably find I'm owed rather than owe ;)

Thanks anyway. I think it's line 450 I need to amend online once I've paid the UK (or at least, when I get the bill).

Oh - one more - can I use the current exchange rate for when I pay the bill, or does that have to be the exchange rate from when the liability arose to the UK (what with the CAD weakening against the GBP, it'll be better to pay 2500 "now" pounds rather than 2500 "8 months ago" pounds - and it seems fair as in theory I have to transfer CAD to GBP NOW to pay the bill!).

Include the out of pocket cost - or cost as of when you pay it.

Cheers

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #305 on: July 13, 2015, 12:39:58 PM »
As I mentioned I found the following and want to crunch some of my own numbers so I get better asset allocation and “location” for DearWife and DearHusband.

http://www.moneysense.ca/taxes/making-smarter-asset-location-decisions/

Current situation 95K TOTAL:
15K cash
80K in two (yes only 2) Canadian stocks in an un-registered (face punch) joint account owned DW & DH (let’s assume book value 20K so lots of capital gains to pay.) One pays dividends the other doesn’t, both about 40K. Both are low right now but who knows when they will go up or down more.

20K TFSA room each  DW & DH
20K RRSP room  for DW 
80K RRSP room for DH
 
Objective: Create a more balanced portfolio (Vanguard ~couch potato) and transfer into tax advantage accounts. 

http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-Vanguard.pdf

Vanguards I am interested in:
25% VAB (Canadian bond mix)
25% VCN (Canadian stock mix)
25% VXC (Global stock mix)
25% VDY (Canadian dividend stock mix)

Steps:
Sell 20K of the stocks and add to 10K cash
OK now we each have 15K to invest

DW puts 15K into an RRSP:  10K VDY, 5K VAB
DH puts 15K into an RRSP:  10K VXC,  5K VAB

60K remaining in Stocks.

At the end of the year:
Sell another 20K stocks, bundle with new savings ~10K
Again we each have 15K to invest

DW puts 5K into and RRSP: 5K  VXC  (RRSP now full for her)
DW puts 10K into TFSA:  10K VCN 
DH puts 15K into RRSP:  5K VAB,  5K VDY, 5K VCN

New picture January 2016
5K cash
40K 2 Canadian stocks
60K in Vanguard (All in registered accounts!)

Split: 
15K VAB (Canadian bond mix)
15K VCN (Canadian stock mix)
15K VXC (Global stock mix)
15K VDY (Canadian dividend stock mix)

Do the tax rules on ETF work the same as stocks and bonds? I guess what I am asking is are there any general rules that VAB should be RRSP and VDY should be unregistered provided the others are full? Where is the best place to build up VXC (global)?

I believe the total 2015 capital gains tax from the 40K stocks that we sell is roughly = ((40-10)/2 )*40% = 6000
But this will be more than offset by reinvesting  20K+30K = 50K in an RRSP.

Should we be putting more into our TFSA? DH’s parents have him convinced RRSPs are a waste of time because you still pay the tax later.  I see them as a beautiful way of offsetting the capital gains at this point in time.  My guess/hope is that our retirement income is about the same as today.

Thanks for looking into this. I am sure there are many opinions on my allocation. I am still Canadian stock heavy. I can tweek 5K here or there, it's not that I don't care but I feel selling a bit of the risky stocks and the LOCATION is really the most important thing I need to optomise right now.

Thanks Again!!

Hi there,

Alright - very detailed!

I don't want to dive into investment allocation - beyond investing personally and earning above 'market' returns on certain picks of mine, I don't have the experience nor expertise to help you out in terms of the validity of Couch Potato and Vanguard Investments.

RRSP vs. TFSA - you'll note a fair bit of debate here in terms of which is better. I think they're complimentary - put the income earning stocks in your RRSP, and capital gains earning stocks into your TFSA. If you have room in both, this is certainly my recommendation. This means for non-dividend earning stocks, the TFSA is great (as re-investing dividends as a company implies a higher implicit growth rate, and thus capital gain).

I happen to agree with Le Barbu when he states that indexing is not a religion. Modern Portfolio Theory holds that you're mostly 'diversified' from specific risk (i.e. invest in Berkshire Hathaway and WB dies) at or around 7-15 individual stock holdings. Investing in multiple indices by this virtue means that you're really only exposed to broader market risk. To me - you want at least an index fund or two (generally one that goes with, and against, the broad market) and some individual stock picks based on fundamental analysis.

The benefit is to use the TFSA and RRSP together if you're looking to lower your marginal tax rate on investments in the long run!

Good luck

CPA CB

RetiredAt63

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #306 on: July 14, 2015, 07:49:19 PM »
Hi CPA CB

I generally have a good handle on my taxes, but a situation specific to my divorce agreement may end up being a tax issue.  I hope you can provide some clarification.

As a couple we owned a house, the "matrimonial home".  When we split I moved out and bought another house, "my house".  We are putting the matrimonial home on the market in August, and since we are so late in the summer it may very well not sell until spring of 2016.  In the divorce agreement we agreed to do nothing that would change the status of the matrimonial home as our principal residence, for tax purposes.

I would also like to sell my house, since I am seriously thinking of moving from Ontario to BC.  If both the matrimonial home and my house sell in 2016, is the matrimonial home my "principle residence" for tax purposes?  I am assuming it is.  In that case I am guessing that I would have to declare capital gains (if any) on my house?  And if I have to declare capital gains on it, what expenses are deductible?  I am assuming any fees to sell it would be, but house improvements?  Is there a good web site for this?

And if my house sold in 2016 and the matrimonial home didn't sell until 2017 (unlikely but always possible) what is the tax situation then?

This is such a mess, I wish we had always rented.  One argument for renting that I haven't seen on the forums yet!
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #307 on: July 15, 2015, 05:32:17 AM »
To CPA CB,
back to the TFSA vs RRSP debate, right now I am investing 100% in the TFSA since my gross income is 35K$ per year. Should I continue doing what I am doing or should I put some towards the RRSP. FYI, I get a 2-3% raise every year, so i don't expect a huge bump in my salary in the near future.

K-ice

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #308 on: July 15, 2015, 06:48:08 AM »
Thanks CPA CB and Le Barbu.

I think I'll set my goal to have 60k invested in in VXC by the end of the year. I think that is the best single ETF to balance my current Canadian stocks.

That will probably be split evenly RRSP TFSA.

I hope over  half will come from new savings but I will need to top it up by selling some stocks.

I'll keep you posted.

Does anyone else has advice on where they put their Vanguard ETFs?

I would love to hear a personal example.

Le Barbu

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #309 on: July 15, 2015, 07:03:46 AM »
To CPA CB,
back to the TFSA vs RRSP debate, right now I am investing 100% in the TFSA since my gross income is 35K$ per year. Should I continue doing what I am doing or should I put some towards the RRSP. FYI, I get a 2-3% raise every year, so i don't expect a huge bump in my salary in the near future.

@fb132, TFSA is the way to go till your gross is below 42-45k$ in Québec. You can top it up to 41k$ now.

The RRSP would give a 28,5% tax return wich looks good but this tax bracket starts at 14k$ gross (I expect you aim for at least 14k$/year for retirement, even if you are Black Belt Mustachian!). In other words, the tax return you'll get is like money you then owe as future taxes. The return on this money when invested will offset the taxes, it's about a toss game. TFSA is also a lot easier to pull out if you need money.

If you are just begening (carreer, job, family etc) I would suggest the following priorities: Repay all debt over 5% FIRST!!! Keep 1-3 months of expenses in cash in you account. Top-up your TFSA and invest in stocks* index Funds with low MER or ETFs.

*Invest in bonds only if your plan is to use TFSA for a down payment on a house or annother short term project or if you cannot stomach a market dowturn. I dont recomend bonds if you carry a debt.

Hope this help!
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Le Barbu

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #310 on: July 15, 2015, 07:21:00 AM »
@K-ice

I hold my ETFs at RBC Direst Investing. Why wouldn't you hold VXC at the same place you hold your Canadian Stocks

VXC is a good pick, XAW is a tad better but it's trivial. Dont forget you can switch to VTI and VXUS when you reach 50-100k$/account to be more tax efficient and lower your MER

Which Canadian stocks do you own? just curious...

Did you calculated ACB? Can you sell a bit without being taxed?

If you feel the urge to hold some bonds (VAB or VSB) they are more tax efficients in TFSA compared to US and Int holdings

Exemple for a fictive, simple, tax efficent portfolio (for someone who started with 1 Canadian stock in taxable account)

Taxable: 40k$ 1 Canadian stock
TFSA: 30k$ VXC and/or VAB
RRSP: 30k$ VXC (over 100k$ in RRSP, VTI and VXUS)

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K-ice

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #311 on: July 15, 2015, 09:30:01 AM »
Thanks Le Barbu

Sorry I wasn't clear. By "where" I ment RRSP vs TFSA.

So you did provide a useful example.

I read

http://www.moneysense.ca/taxes/making-smarter-asset-location-decisions/

Which recommends more bonds in RRSP if given a choice.

Do you know if VAB and individual bonds are treated the same tax wise?

As for my stocks they are BNE.TO and SPE.TO. They are both taking a beating but still above what I paid. I hate to sell low but I'm worried they could fall more.

Thanks for the VTI tip once +50K

Le Barbu

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #312 on: July 15, 2015, 09:50:10 AM »
Thanks Le Barbu

Sorry I wasn't clear. By "where" I ment RRSP vs TFSA. So, just buy VXC as much as you can!

So you did provide a useful example.

I read

http://www.moneysense.ca/taxes/making-smarter-asset-location-decisions/

Which recommends more bonds in RRSP if given a choice. Bonds are best held in RRSP but you have to choose between bonds and non-canadian holdings in TFSA, I would definetly put bonds in TFSA and US+Int holdings in RRSP (because of the witholding taxes etc)

Do you know if VAB and individual bonds are treated the same tax wise? Yes

As for my stocks they are BNE.TO and SPE.TO. They are both taking a beating but still above what I paid. I hate to sell low but I'm worried they could fall more. You should read "as easy as ACB" from Dan Bartolotti (CCP) maybe some share could be sold without tax over capital gain. Depends of how many shares, price when you bought, split etc

Thanks for the VTI tip once +50K
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Le Barbu

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #313 on: July 15, 2015, 09:56:39 AM »

As for my stocks they are BNE.TO and SPE.TO. They are both taking a beating but still above what I paid. I hate to sell low but I'm worried they could fall more.

Over the last 10 years, BNE and SPE returned the same as XIC but with a lot more volatility. Over the last 5 years, BNE drags but SPE is flying, on average, you achieve good returns.
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #314 on: July 15, 2015, 10:04:46 AM »
Thanks Le Barbu

Sorry I wasn't clear. By "where" I ment RRSP vs TFSA.

So you did provide a useful example.

I read

http://www.moneysense.ca/taxes/making-smarter-asset-location-decisions/

Which recommends more bonds in RRSP if given a choice.

Do you know if VAB and individual bonds are treated the same tax wise?

As for my stocks they are BNE.TO and SPE.TO. They are both taking a beating but still above what I paid. I hate to sell low but I'm worried they could fall more.

Thanks for the VTI tip once +50K

I believe it's best to hold your highest growth potential assets in your TFSA to maximize the complete "tax-free" benefits that this account gives.

This means your bond holdings should be in your RRSP first. Yes, it is advantageous to put your US allocation in an RRSP for future possibilities to invest in US listed ETF's like VTI, but I believe the 15% withholding tax on dividends doesn't outweigh the lost potential of putting low growth assets like bonds in a TFSA.

Yes VAB is taxed the same as the most common individual bonds.
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Le Barbu

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #315 on: July 15, 2015, 10:50:26 AM »
@Tuxedo, valid arguments but at the end, it depends on individual situation. If someone use his TFSA for short term savings (down payment, emergency fund), VSB could be the way to go...
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #316 on: July 15, 2015, 11:02:29 AM »
To CPA CB,
back to the TFSA vs RRSP debate, right now I am investing 100% in the TFSA since my gross income is 35K$ per year. Should I continue doing what I am doing or should I put some towards the RRSP. FYI, I get a 2-3% raise every year, so i don't expect a huge bump in my salary in the near future.

@fb132, TFSA is the way to go till your gross is below 42-45k$ in Québec. You can top it up to 41k$ now.

The RRSP would give a 28,5% tax return wich looks good but this tax bracket starts at 14k$ gross (I expect you aim for at least 14k$/year for retirement, even if you are Black Belt Mustachian!). In other words, the tax return you'll get is like money you then owe as future taxes. The return on this money when invested will offset the taxes, it's about a toss game. TFSA is also a lot easier to pull out if you need money.

If you are just begening (carreer, job, family etc) I would suggest the following priorities: Repay all debt over 5% FIRST!!! Keep 1-3 months of expenses in cash in you account. Top-up your TFSA and invest in stocks* index Funds with low MER or ETFs.

*Invest in bonds only if your plan is to use TFSA for a down payment on a house or annother short term project or if you cannot stomach a market dowturn. I dont recomend bonds if you carry a debt.

Hope this help!

I use the Canadian Couch Potato guideline of 60% in VXC, 30% in VCN and 10% on VAB...I have no debts and I save minimum 50% of my income, so around 15-16K$ per year :)

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #317 on: July 15, 2015, 11:19:38 AM »

@fb132 Thanks but are those in RRSP or TFSA? And what is where?

@ Le Barbu & Tux

Ok. I think I got it.

VAB in TFSA for shorter term holdings.
VAB in RRSP for set it & forget it.


VIT in RRSP for the U.S. tax advantage

VXC and VCN will probably be in TFSA since they should be higher growth.
But putting those in an RRSP is not a bad idea if I want the tax refund today.


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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #318 on: July 15, 2015, 11:31:03 AM »

@fb132 Thanks but are those in RRSP or TFSA? And what is where?

@ Le Barbu & Tux

Ok. I think I got it.

VAB in TFSA for shorter term holdings.
VAB in RRSP for set it & forget it.


VIT in RRSP for the U.S. tax advantage

VXC and VCN will probably be in TFSA since they should be higher growth.
But putting those in an RRSP is not a bad idea if I want the tax refund today.
Well I know I am in the lower tax bracket, so I put all three (VXC, VCN and VAB) in my TFSA simply because I have alot of room in there. I don't use the RRSP at all for now...well not until the TFSA is maxed.

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #319 on: July 16, 2015, 02:55:31 PM »
Hi CPA CB

I generally have a good handle on my taxes, but a situation specific to my divorce agreement may end up being a tax issue.  I hope you can provide some clarification.

As a couple we owned a house, the "matrimonial home".  When we split I moved out and bought another house, "my house".  We are putting the matrimonial home on the market in August, and since we are so late in the summer it may very well not sell until spring of 2016.  In the divorce agreement we agreed to do nothing that would change the status of the matrimonial home as our principal residence, for tax purposes.

I would also like to sell my house, since I am seriously thinking of moving from Ontario to BC.  If both the matrimonial home and my house sell in 2016, is the matrimonial home my "principle residence" for tax purposes?  I am assuming it is.  In that case I am guessing that I would have to declare capital gains (if any) on my house?  And if I have to declare capital gains on it, what expenses are deductible?  I am assuming any fees to sell it would be, but house improvements?  Is there a good web site for this?

And if my house sold in 2016 and the matrimonial home didn't sell until 2017 (unlikely but always possible) what is the tax situation then?

This is such a mess, I wish we had always rented.  One argument for renting that I haven't seen on the forums yet!

Hello,

The way this works is quite simple, but I do have a few questions:

What is the official separation date? Is there a formal separation agreement signed (if so, when?)

Up until the date of formal separation (i.e. through agreement or divorce decree) the ITA regards yourself and your ex to be a 'family unit', which in this case means that you receive one PR deduction per annum, for both of you.

Now, I'm sure as you've read in the forum, I've mentioned the 'plus one' rule a few times here, which in essence means you receive an additional year of exemption 'free' upon claiming PR on any property. So, if the goal is to eliminate all capital gains on the marital home, you declare principal residence for all but one year, leaving the most recent year, say 2015, available to claim on your current home.

In doing so, you fully cover the marital home - and cover 2 years of PR on your current home, which I imagine will fully cover it as well from the sounds of it.

One thing that is often missed in divorce proceedings is a strategy to maximize 'after tax' dollars for both parties. You want to look at the marginal capital gain on BOTH properties on a per year basis to determine which property to use the PR shield on entirely. If it so happens your current home appreciated $20,000 per year, and the marital home $10,000, why not use the PR on the current home, and split the tax savings with your ex? If you're both better off, why not!

Best of luck - matrimonial proceedings are always difficult, just don't fall into the trap that usually happens in terms of costs. A family lawyer friend of mine told me once - "The only time family cases settle is when there's no money left for the lawyers to take". Beware!

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #320 on: July 16, 2015, 03:08:22 PM »
CPA CB,

First I would like to thank you for taking the time to help us navigate around the Canadian tax system to realize it`s benefits.

I have a question around the LCGE exemption for qualified farm property, and I`ll explain my situation:

Currently I have (3) farm properties that I have held for over (2) years solely in my personal name and ran as a sole proprietorship. I will be able to realize about $500k of capital gains upon the sale of these properties, but I want to make sure I fully qualify for the exemption in the eyes of the CRA. The one hang-up I think I`ll have is that I currently am employed with a company that allows me to generate more income from the employer than what I can from my farming proprietorship. What are your thoughts on how I can take advantage of selling these properties and taking advantage of the LCGE, what I see is now up to $1 million as per the 2015 budget.

Thanks in advance.

Cheers,

Sammy

Hi Sammy,

Thanks for your question - sorry I've just seen it now.

Okay - you're right that the biggest issue here is in the definition of 'principally' - in that the gross income from the farming business must exceed that of your employment income (in this case) for the two years prior to the sale.

The question is - how much does each individual farm make, and how does this compare to your employment income? Is it possible to expand the gross income from farming to beat employment income?

If you could give a bit more background I could be more specific here -

Thanks

CPA CB

sammy

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #321 on: July 16, 2015, 07:11:57 PM »
CPA CB,

Thanks for the response.

All farm properties operate as one farm, they are just (3) seperate titles. Income is not broken down on a per title basis.

There is not a good chance that I could have my gross farm income exceed income from my other employment source, but I do have an option I would like to run past you. Currently I am employed with a company, but I do have the option to contract and get paid into my corporation (holdco and opco). If I could get a wage paid into my corporation, and not draw any personal income from it, then my farming income would be the higher income personally (which could support my living). Would doing this for two years allow me to take advantage of the exemption? Also, just to confirm the exempion is now $1 MCAD?


Appreciate the help!

Sammy

PharmaStache

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #322 on: July 17, 2015, 08:13:06 PM »
Couple questions for you.  Maybe this has been covered before but one is RRSP and one is TFSA

RRSP
I have a pension coming if i spend enough years at work.  I was hoping to delay taking my pension after retirement and planned on contributing to a RRSP in the mean time to reduce taxes.  Would there be any complications with my in the future for example if i stop part time work at age 52, and then pull from my RRSP for the next 3-10 years?  Then after using up my RRSP i would take my pension and get a higher amount then.  This would let me claim my RRSP (probably at 30-40k per year withdrawn) at some of the lowest possible tax brackets if had had little or no other income if i am not missing any other points.  are there any other withdrawl problems like age requirements?  Current income is ~$80k depending on OT and such

TFSA
I understand the limits of the TFSA, but i have a question on how compound interest will affect my limit.  For a simplified question, Say i had $19,000 dollars in my TFSA in february and the limit was $20,000.  And then i got a magical amount of $2000 in interest later that year before the new year's increase.  I'm now officially over my limit am i not?  Would i have to withdraw money so i would stay under the limit?  How do i account for interest gained?

Hi,

TFSA - the limit is on money deposited (principal), rather than total amount. So in your case, you'd be fine.

As for the RRSP - no issues in terms of age requirements, my only concern in your case is delaying the pension.

Pensions are hard to value - but you want to consider your options here. By deferring your pension, this likely means you'll have to keep contributing to it, and you also 'lose' those years of cash flow in terms of collecting the funds. In this sense, there is rarely a 'loss' if you take your pension early, unless you live past at least about 80 years of age. If you give me more details - year of birth, pension contributions per annum, and your pension amount at 52 and another age, I can roughly give you an idea in terms of present value of the pension in both scenarios.

Good luck!

If you're open to more pension questions, I'd love to get your thoughts on a thread I started : http://forum.mrmoneymustache.com/ask-a-mustachian/pension-question-(canada)-what-is-the-value-of-my-pension/

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #323 on: July 18, 2015, 02:54:37 PM »
CPA CB,

Thanks for the response.

All farm properties operate as one farm, they are just (3) seperate titles. Income is not broken down on a per title basis.

There is not a good chance that I could have my gross farm income exceed income from my other employment source, but I do have an option I would like to run past you. Currently I am employed with a company, but I do have the option to contract and get paid into my corporation (holdco and opco). If I could get a wage paid into my corporation, and not draw any personal income from it, then my farming income would be the higher income personally (which could support my living). Would doing this for two years allow me to take advantage of the exemption? Also, just to confirm the exempion is now $1 MCAD?


Appreciate the help!

Sammy

Hi Sammy -

Yes, it's $1,000,000 in capital gains, so $500,000 taxable capital gains are exempt.

It is possible to run through a business, certainly, but you want to ensure the relationship is truly that of a contractor/contractee rather than an employee. This means you need to ensure you cover the following:

Control - over when you work and how the work is performed.
You own your own tools/equipment
You have the risks/rewards of ownership - this means you control your profitability
You're not limited to the one contractor - the more external clients you have, the easier it is to prove this is not an employee/employer relationship.

Good luck!



CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #324 on: July 18, 2015, 02:59:32 PM »
Couple questions for you.  Maybe this has been covered before but one is RRSP and one is TFSA

RRSP
I have a pension coming if i spend enough years at work.  I was hoping to delay taking my pension after retirement and planned on contributing to a RRSP in the mean time to reduce taxes.  Would there be any complications with my in the future for example if i stop part time work at age 52, and then pull from my RRSP for the next 3-10 years?  Then after using up my RRSP i would take my pension and get a higher amount then.  This would let me claim my RRSP (probably at 30-40k per year withdrawn) at some of the lowest possible tax brackets if had had little or no other income if i am not missing any other points.  are there any other withdrawl problems like age requirements?  Current income is ~$80k depending on OT and such

TFSA
I understand the limits of the TFSA, but i have a question on how compound interest will affect my limit.  For a simplified question, Say i had $19,000 dollars in my TFSA in february and the limit was $20,000.  And then i got a magical amount of $2000 in interest later that year before the new year's increase.  I'm now officially over my limit am i not?  Would i have to withdraw money so i would stay under the limit?  How do i account for interest gained?

Hi,

TFSA - the limit is on money deposited (principal), rather than total amount. So in your case, you'd be fine.

As for the RRSP - no issues in terms of age requirements, my only concern in your case is delaying the pension.

Pensions are hard to value - but you want to consider your options here. By deferring your pension, this likely means you'll have to keep contributing to it, and you also 'lose' those years of cash flow in terms of collecting the funds. In this sense, there is rarely a 'loss' if you take your pension early, unless you live past at least about 80 years of age. If you give me more details - year of birth, pension contributions per annum, and your pension amount at 52 and another age, I can roughly give you an idea in terms of present value of the pension in both scenarios.

Good luck!

If you're open to more pension questions, I'd love to get your thoughts on a thread I started : http://forum.mrmoneymustache.com/ask-a-mustachian/pension-question-(canada)-what-is-the-value-of-my-pension/

Hi Pharmastache

I'm happy to give you a rough idea of net present value - if you want to provide your age, gender, planned time of retirement, pension contributions per annum (yours), and pension income upon retirement/quitting I can at least give you a rough idea.

Mind you - this isn't necessarily the same as what you'll receive in 'commuting' your pension - but at least you'll know what it's worth to you!

You should have a pension book available to you, which shows how the pension is calculated etc. If you require another copy, you can obtain one through your employer or through the financial regulatory body in Manitoba (in your case.) In Ontario it is FSCO - in Manitoba, not sure what the acronym would be.

Hope this helps,

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #325 on: July 18, 2015, 03:09:25 PM »
Hello Fellow MMM'ers

Just starting up a quick poll here - how many of you want to see this topic 'stuck' at the top of the Tax Forum?

I figure if we round up enough Yay's someone from the powers that be will notice! It'd be helpful I'm sure to many of you who keep returning.

Looks like I can't actually change the poll now that it's locked out. So, just say yes in a reply!

Cheers,

CPA CB
« Last Edit: July 18, 2015, 03:14:28 PM by CPA CB »

Heckler

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #326 on: July 19, 2015, 06:05:37 PM »
I'd love to see the Canadian version of the tax guide as a sticky, but find threads that keep themselves at the top of the page like this one has been far more relevant.  Stickies tend to die.  If you were to write up The Mustache Tax Guide (CAD version) and include a link to this thread for discussion, I can see that as far more useful.

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/


MMMdude

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #327 on: July 20, 2015, 11:53:22 PM »
Wife started business this year. Initially did not think she would be over $30,000 in sales as i understand GST is to be charged at $30k annually in sales or in the last four quarters.

So, should we register for GST and start charging, or wait until end of year and start charging Jan 1, 2016? What if her sales were say $35K this year....do we then owe 5% on the entire amount or just $5K?

scrubbyfish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #328 on: July 21, 2015, 09:56:31 AM »
I don't know about ^, specifically, but I did learn to check the other pieces first, i.e. which businesses/income sources are required to charge GST. Some aren't.

daverobev

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #329 on: July 21, 2015, 08:49:58 PM »
Wife started business this year. Initially did not think she would be over $30,000 in sales as i understand GST is to be charged at $30k annually in sales or in the last four quarters.

So, should we register for GST and start charging, or wait until end of year and start charging Jan 1, 2016? What if her sales were say $35K this year....do we then owe 5% on the entire amount or just $5K?

You register as soon as you are going to hit the 30k.

You're thinking of it 'wrong'. HST/GST/PST is just (for business to business) a pass through. You charge the same amount, but add on the tax and remit it to the government quarterly or yearly.

IF you are buying stuff and paying GST on it, you'll be better off registering sooner. If your clients are end-users (ie they don't claim back and GST paid) then yeah you'd want - for their sake/the look of your prices - to delay as long as possible.

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/rgstrng/menu-eng.html
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/rgstrng/smllspplrclc-eng.html
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Koogie

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #330 on: July 31, 2015, 07:44:35 AM »
Question re: taxation year ends.

I own and run a mid sized CCPC.  It is two tier.  Opco is 100% owned by Holdco and my wife and I each own half of Holdco.  Due to an upcoming ownership change in my OPCO, I am going to move from paying myself (and spouse) salaries from the Opco as employees to an all dividend remuneration as shareholders (from Holdco).

My question is, does the timing of the change matter ? The ownership change will occur in Sept/Oct (I am taking on an OPCO partner) but I have full control over when I do the remuneration change. Our corporate year end (both companies) is August 31.

I am thinking of making the change come January 01 for the simple reason that our CA does the corporate returns and I do our personal tax returns. Therefore, less of a headache for me in 2015 and a clean start to 2016.

Right or wrong ?
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Distillation is a miracle of science.
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Semi-ERd: September 2015 at 42.

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #331 on: August 04, 2015, 12:23:58 PM »
Question re: taxation year ends.

I own and run a mid sized CCPC.  It is two tier.  Opco is 100% owned by Holdco and my wife and I each own half of Holdco.  Due to an upcoming ownership change in my OPCO, I am going to move from paying myself (and spouse) salaries from the Opco as employees to an all dividend remuneration as shareholders (from Holdco).

My question is, does the timing of the change matter ? The ownership change will occur in Sept/Oct (I am taking on an OPCO partner) but I have full control over when I do the remuneration change. Our corporate year end (both companies) is August 31.

I am thinking of making the change come January 01 for the simple reason that our CA does the corporate returns and I do our personal tax returns. Therefore, less of a headache for me in 2015 and a clean start to 2016.

Right or wrong ?

Hi Koogie,

I take it you sold a portion of your business then? Remember to ensure you triggered the QSBCD credits appropriately -

In terms of your accountant - making the transition is a relative no-brainer. If you opt to do dividends in 2015 however, remember that you'll need to file a T5 in addition to your regular T4 income.

The other consideration is Part IV tax here - Going forward, your Holdco will pay 33 1/3rd percent tax on the taxable dividends paid through Opco, but this is utilized as a tax credit when the income flows through to you personally in the Holdco. Just remember to keep this in mind for your planning purposes.

Hope this helps!

CPA CB


Koogie

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #332 on: August 05, 2015, 07:50:49 AM »
Hi Koogie,
I take it you sold a portion of your business then? Remember to ensure you triggered the QSBCD credits appropriately -
In terms of your accountant - making the transition is a relative no-brainer. If you opt to do dividends in 2015 however, remember that you'll need to file a T5 in addition to your regular T4 income.
The other consideration is Part IV tax here - Going forward, your Holdco will pay 33 1/3rd percent tax on the taxable dividends paid through Opco, but this is utilized as a tax credit when the income flows through to you personally in the Holdco. Just remember to keep this in mind for your planning purposes.
Hope this helps!
CPA CB

Thanks.   Yes, I am selling a minority share in the business.  Unfortunately I can't crystalize any of the LCGE due to the nature of the setup of the business and the dormant funds it holds (so says my CA).
I do believe I will switch to a dividend remuneration come 2016.   So, therefore, no need for a T5 until the end of next year but thanks for the reminder.
I am confused about the Part IV statement though.  Are you assuming due to the sale that Opco and Holdco would no longer qualify as "connected companies" ?  Or that outside dividends are earned by Opco ?   All investments are actually held by Holdco.

Cheers.
Fermentation is a miracle of nature.
Distillation is a miracle of science.
Better living through Science !

Semi-ERd: September 2015 at 42.

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #333 on: August 17, 2015, 07:59:06 AM »
Hi Koogie,
I take it you sold a portion of your business then? Remember to ensure you triggered the QSBCD credits appropriately -
In terms of your accountant - making the transition is a relative no-brainer. If you opt to do dividends in 2015 however, remember that you'll need to file a T5 in addition to your regular T4 income.
The other consideration is Part IV tax here - Going forward, your Holdco will pay 33 1/3rd percent tax on the taxable dividends paid through Opco, but this is utilized as a tax credit when the income flows through to you personally in the Holdco. Just remember to keep this in mind for your planning purposes.
Hope this helps!
CPA CB

Thanks.   Yes, I am selling a minority share in the business.  Unfortunately I can't crystalize any of the LCGE due to the nature of the setup of the business and the dormant funds it holds (so says my CA).
I do believe I will switch to a dividend remuneration come 2016.   So, therefore, no need for a T5 until the end of next year but thanks for the reminder.
I am confused about the Part IV statement though.  Are you assuming due to the sale that Opco and Holdco would no longer qualify as "connected companies" ?  Or that outside dividends are earned by Opco ?   All investments are actually held by Holdco.

Cheers.

Hi Koogie,

It should still be a connected company - you've likely (hopefully if dividends are flowing to HoldCo) been paying Part IV Tax as is - so this won't necessarily change. The point was that if you're taking more remuneration in dividends, this will be a consideration for tax planning and timing purposes.

You end up getting this back as the money flows up to you personally (through Refundable dividend tax on hand).

Hope this clarifies a bit

Koogie

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #334 on: August 17, 2015, 10:37:44 AM »
Hi Koogie,
It should still be a connected company - you've likely (hopefully if dividends are flowing to HoldCo) been paying Part IV Tax as is - so this won't necessarily change. The point was that if you're taking more remuneration in dividends, this will be a consideration for tax planning and timing purposes.
You end up getting this back as the money flows up to you personally (through Refundable dividend tax on hand).
Hope this clarifies a bit

Understood. I've been reading up about RDTOH and "think" I have a handle on it.    I have a meeting this week with my CA so will get him to clarify everything.   

Thanks again.
Fermentation is a miracle of nature.
Distillation is a miracle of science.
Better living through Science !

Semi-ERd: September 2015 at 42.

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #335 on: August 17, 2015, 10:41:07 AM »
Hi Koogie,
It should still be a connected company - you've likely (hopefully if dividends are flowing to HoldCo) been paying Part IV Tax as is - so this won't necessarily change. The point was that if you're taking more remuneration in dividends, this will be a consideration for tax planning and timing purposes.
You end up getting this back as the money flows up to you personally (through Refundable dividend tax on hand).
Hope this clarifies a bit

Understood. I've been reading up about RDTOH and "think" I have a handle on it.    I have a meeting this week with my CA so will get him to clarify everything.   

Thanks again.

No problem -

It's and odd concept - really it is the CRA's way of ensuring you pay personal tax on dividends when owned through a holding company, sooner rather than later. The 33 1/3rd percent tax is meant to roughly act as a 'deposit' on your future taxes, if you will.


CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #336 on: August 17, 2015, 10:57:26 AM »
I'd love to see the Canadian version of the tax guide as a sticky, but find threads that keep themselves at the top of the page like this one has been far more relevant.  Stickies tend to die.  If you were to write up The Mustache Tax Guide (CAD version) and include a link to this thread for discussion, I can see that as far more useful.

http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/

Great point -  I'm doing this for the Employed and Self-Employed.

Stay tuned!

CPA CB

daverobev

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #337 on: August 20, 2015, 02:08:51 PM »
Silly question about instalment payments.

I paid more than the "box 2" amount in March and June. Because of cap gains last year, my "box 2" amounts for September and December are massive. However, the "box 2" amounts I paid already were assuming I wasn't going to have much work in the second half of the year. But I've ended up being signed up for 3 days a week for the rest of the year.

So, the amount I will actually owe is more than double what I have already paid, but will probably be less than the sum of 4 "box 2" amounts. I honestly didn't anticipate the extra work at the end of the year.

Presumably I can pay the September "box 2" amount LESS THE OVERPAYMENT made in Mar-Jun and still "meet" the requirement to not have penalties?

Say:

box 2 Mar-Jun = 2k each, I paid 2.5k twice because that is what I thought 1/4 of the year's tax would be;

box 2 Sep-Dec = 5k each, can I pay 5k - (2 x 500 overpayment) = 4k in Sept and not get penalised?

Guessing with these fictional numbers my total for the year will be 12k not the 14k "box 2" suggests. But I can't go back in time and pay (1/4 of 12k = 3k) for March and June.

Make any sense? Any other options for paying less now? I don't mind paying the tax, it's just a lot next month when I didn't actually earn anything in July and won't necessarily have been paid for August's work by the Sept 15 deadline!

*Edit* got an answer elsewhere that I'm ok doing that, as the 'overpayments' are just listed as extra pre-credit and I can pay that much less to still be on track.
« Last Edit: August 28, 2015, 03:38:42 PM by daverobev »
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scrubbyfish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #338 on: August 28, 2015, 12:07:17 PM »
Q. What is the tax rate on a Trust (personal)?

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #339 on: September 03, 2015, 11:47:07 AM »
Q. What is the tax rate on a Trust (personal)?

In a living trust, the tax rate is the highest marginal tax rate applicable to a person. However, you can make deductions on income and flow through to the beneficiary to pass this from high marginal rates to low marginal rates.


scrubbyfish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #340 on: September 03, 2015, 12:01:56 PM »
Thanks, CPA CB.

I don't understand yet. I made a Trust for myself and my kid, such that I am both the settlor and one of the beneficiaries. How is the tax rate determined? i.e., For my individual taxes, outside of the Trust, my tax rate is 15%. Is that what CRA uses to determine tax rates on income generated inside the Trust?

I'm inclined to move a Corporate-owned asset into the Trust, but I keep being told Corporate tax rates are better than Trust tax rates. But it seems to me that in my case, they are both 15%.

Also, what deductions can be claimed against income in a Trust?

Mr. Tony

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #341 on: September 03, 2015, 07:36:30 PM »
Hey there Eh!

I have been slack in the RRSP investment game and am working to catch up.  I don't know the exact amount but I probably have over $30k in available as per my last assessment.  Would you recommend getting an RRSP loan and then apply the refund against the loan?

Le Barbu

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #342 on: September 03, 2015, 08:00:22 PM »
Hey there Eh!

I have been slack in the RRSP investment game and am working to catch up.  I don't know the exact amount but I probably have over $30k in available as per my last assessment.  Would you recommend getting an RRSP loan and then apply the refund against the loan?

Make a contribution to reduce your taxable income to arround 30k$ (lower than that is not really worth). You got until march 1st 2016 to contribute. If you intend to get a loan, make it managable so you can repay with the refund 1-2 month later. Focus on maxing it out every year.
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lostamonkey

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #343 on: September 03, 2015, 08:13:27 PM »
Hi Koogie,
I take it you sold a portion of your business then? Remember to ensure you triggered the QSBCD credits appropriately -
In terms of your accountant - making the transition is a relative no-brainer. If you opt to do dividends in 2015 however, remember that you'll need to file a T5 in addition to your regular T4 income.
The other consideration is Part IV tax here - Going forward, your Holdco will pay 33 1/3rd percent tax on the taxable dividends paid through Opco, but this is utilized as a tax credit when the income flows through to you personally in the Holdco. Just remember to keep this in mind for your planning purposes.
Hope this helps!
CPA CB

Thanks.   Yes, I am selling a minority share in the business.  Unfortunately I can't crystalize any of the LCGE due to the nature of the setup of the business and the dormant funds it holds (so says my CA).
I do believe I will switch to a dividend remuneration come 2016.   So, therefore, no need for a T5 until the end of next year but thanks for the reminder.
I am confused about the Part IV statement though.  Are you assuming due to the sale that Opco and Holdco would no longer qualify as "connected companies" ?  Or that outside dividends are earned by Opco ?   All investments are actually held by Holdco.

Cheers.

Hi Koogie,

It should still be a connected company - you've likely (hopefully if dividends are flowing to HoldCo) been paying Part IV Tax as is - so this won't necessarily change. The point was that if you're taking more remuneration in dividends, this will be a consideration for tax planning and timing purposes.

You end up getting this back as the money flows up to you personally (through Refundable dividend tax on hand).

Hope this clarifies a bit

I thought connected corps were exempt from part 4 tax? Am I wrong?

Cathy

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #344 on: September 03, 2015, 08:50:04 PM »
Q. What is the tax rate on a Trust (personal)?

In a living trust, the tax rate is the highest marginal tax rate applicable to a person. However, you can make deductions on income and flow through to the beneficiary to pass this from high marginal rates to low marginal rates.
Thanks, CPA CB.

I don't understand yet. I made a Trust for myself and my kid, such that I am both the settlor and one of the beneficiaries. How is the tax rate determined? i.e., For my individual taxes, outside of the Trust, my tax rate is 15%. Is that what CRA uses to determine tax rates on income generated inside the Trust?

I'm inclined to move a Corporate-owned asset into the Trust, but I keep being told Corporate tax rates are better than Trust tax rates. But it seems to me that in my case, they are both 15%.

Also, what deductions can be claimed against income in a Trust?

I think you may have misunderstood what CPA CB meant. Under the Canadian federal tax regime, the general rule is that the tax payable by a trust is 29% of its taxable income for the year. Income Tax Act, RSC 1985, c 1 (5th Supp), § 122(1)(a). The rate of 29% is also the highest marginal tax rate applicable to individuals, although that is technically just a coincidence since the structure of the legislation does not make those the same value. In other words, the general rule is that trusts do not pay graduated income tax, but rather a flat rate of 29%. However, the general rule is subject to a large number of exceptions, which I'll let CPA CB discuss if he wants to.
« Last Edit: September 03, 2015, 08:51:36 PM by Cathy »
This post contains only general information on the issues raised by this topic. This post does not provide help tailored to your specific situation. There are many facts that could be relevant to your specific situation and I am not in possession of those facts. If you need help tailored to your specific situation, you should retain an appropriate professional and not rely on this post.

K-ice

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #345 on: September 04, 2015, 04:29:37 PM »
In a taxable account of Canadian equities I currently have some "loser stocks" with a capital loss of about $7000. 

First question:
If I sell the “loser stocks” in a year when I have no capital loss can I claim this loss in a future year?
I found this that scared me  “Capital gains can be offset with capital losses from other investments. In the case you have no taxable capital gains however, a capital loss cannot be claimed against regular income except for some small business corporations.” (http://www.moneysense.ca/taxes/capital-gains-explained/)

At the same time I have "winner stocks" with a gain of $20,000.


Currently, I have not sold any stocks so this has not been realised.


But I have room in my registered accounts and I was thinking that I would transfer the  "winner stocks" "in kind" into my TFSA.  Even though they gained a lot, they are the lowest they have been in a while so now is a good time to “in kind” them over. 

I understand that this will trigger a deemed deposition and I have calculated the tax at about ($20,000/2)*35% = $3500.

I wanted to offset this tax and I thought I could do that in two ways.

A)   I could sell the “loser stocks”.  Now my gain is only (13,000/2)*35% = $2275
(Not that much of an offset)
Or
B)   I could purchase some RRSP with other cash, I think I need about $10,000 to offset the gain. 
$10,000*35% = $3500 cash back

I am quite sure I can save the cash for the RRSP by the year end.
I also hope the “looser stocks” climb out, I am a buy and hold investor, and why sell low if I don’t need to. 

Second & third Question:
Does my math and logic seam correct on how to offset  the capital gain?  Are there any pros and cons to A vs B I am missing?

Thanks!

scrubbyfish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #346 on: September 04, 2015, 05:08:50 PM »
I think you may have misunderstood what CPA CB meant. Under the Canadian federal tax regime, the general rule is that the tax payable by a trust is 29% of its taxable income for the year. Income Tax Act, RSC 1985, c 1 (5th Supp), § 122(1)(a). The rate of 29% is also the highest marginal tax rate applicable to individuals, although that is technically just a coincidence since the structure of the legislation does not make those the same value. In other words, the general rule is that trusts do not pay graduated income tax, but rather a flat rate of 29%. However, the general rule is subject to a large number of exceptions, which I'll let CPA CB discuss if he wants to.

Thanks, Cathy! Yes, I didn't understand even that little bit, so was aiming for clarification. Okay, so 29% but exceptions. Will wait to hear from CPA CB on those.

RidinTheAsama

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #347 on: September 04, 2015, 05:10:44 PM »
My first question here:

I was wondering if the CCTB and/or UCCB benefits we receive every month would count towards our income when calculating our RRSP contribution room.

My guess was that since CCTB is a non-taxable benefit it does not count, and maybe since UCCB is a taxable benefit it does count.  Is this correct?

Thanks!

GettingThere

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #348 on: September 24, 2015, 07:38:17 AM »
My first question here:

I was wondering if the CCTB and/or UCCB benefits we receive every month would count towards our income when calculating our RRSP contribution room.

My guess was that since CCTB is a non-taxable benefit it does not count, and maybe since UCCB is a taxable benefit it does count.  Is this correct?

Thanks!

Hi

Your maximum annual RRSP contribution is based on your earned income in the previous year. Earned income includes salaries, employee profit sharing income, business income, disability pensions (issued under the Canada and Quebec pension plans), taxable alimony or maintenance, and rental income.

Neither CCTB or UCCB count towards calculating your RRSP room.


GettingThere

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #349 on: September 24, 2015, 07:52:04 AM »
In a taxable account of Canadian equities I currently have some "loser stocks" with a capital loss of about $7000. 

First question:
If I sell the “loser stocks” in a year when I have no capital loss can I claim this loss in a future year?
I found this that scared me  “Capital gains can be offset with capital losses from other investments. In the case you have no taxable capital gains however, a capital loss cannot be claimed against regular income except for some small business corporations.” (http://www.moneysense.ca/taxes/capital-gains-explained/)

At the same time I have "winner stocks" with a gain of $20,000.


Currently, I have not sold any stocks so this has not been realised.


But I have room in my registered accounts and I was thinking that I would transfer the  "winner stocks" "in kind" into my TFSA.  Even though they gained a lot, they are the lowest they have been in a while so now is a good time to “in kind” them over. 

I understand that this will trigger a deemed deposition and I have calculated the tax at about ($20,000/2)*35% = $3500.

I wanted to offset this tax and I thought I could do that in two ways.

A)   I could sell the “loser stocks”.  Now my gain is only (13,000/2)*35% = $2275
(Not that much of an offset)
Or
B)   I could purchase some RRSP with other cash, I think I need about $10,000 to offset the gain. 
$10,000*35% = $3500 cash back

I am quite sure I can save the cash for the RRSP by the year end.
I also hope the “looser stocks” climb out, I am a buy and hold investor, and why sell low if I don’t need to. 

Second & third Question:
Does my math and logic seam correct on how to offset  the capital gain?  Are there any pros and cons to A vs B I am missing?

Thanks!

Hi

I am also a tax accountant (based in Quebec) so I guess I can pitch in to the great service CPA CB has been providing in this post.

1)  If you have a capital loss in current year, you can use it to reduce any capital gains you had in the year, to a balance of zero. If your capital losses are more than your capital gains, you may have a net capital loss for the year. Generally, you can apply your net capital losses to taxable capital gains of the three preceding years and to taxable capital gains of any future years. So yes, you keep the losses until they are used.

2) Your logic re : offsetting capital gains of 20K. A capital gain of 20K will add 10K to your taxable income as you know. If you want to completely offset this, you need to contribute 10K to your RRSP, or have 20K in capital losses.

In my opinion what people miss the most when deciding on a tax issue, is considering all the other variables other than direct income tax. There is so much more to consider : impact on child care benefits,  GST\PST refunds, reimbursement of daycare costs, Guaranteed income supplement,  health tax (in Quebec) and the list goes on....