Author Topic: Can"EH"dian Tax - You have questions, I have answers  (Read 121231 times)

Freedomin5

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #400 on: December 03, 2015, 04:55:56 AM »
Posting to follow. This thread is very helpful!

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #401 on: December 08, 2015, 02:19:49 PM »
I have a question regarding inheritance and estate taxes.  My mother passed away earlier this year.  She had her monthly income from two different sources, her RRIF which is cashed out by her estate, and an annuity, which was paid out directly to me.  My wife and I plan to give some money to charity in honour of my mom and I am just trying to figure out if it makes any difference from a tax perspective if the Estate makes the contribution vs me personally. The estate will have income for the year of ~160K and myself will be ~200k

I maxed out my RRSP contribution room to minimize as much taxes as I can as I don't normally fall into such a high tax bracket, but is there anything else I can do to minimize my taxes for the year?  I don't have any losses that I can claim in my investment account as I only opened up a taxable account this year and my investments are slightly up.

Hi WPG Dude,

Sorry to hear regarding your mother.

I have some follow up questions regarding your inquiry -

For clarity, an inheritance in Canada is non-taxable to you. Technically speaking, the Estate is responsible for the tax bill.

There are two tax returns to file through an estate - the final return, and a rights and things return (which offer graduated tax rates like a regular return). The biggest advantage to a Rights and Things return is bumping accrued income due (but not yet paid) from the highest marginal rate to the lowest - such as her RRIF and Annuity payments forthcoming.

Did you commute the annuity at fair market value? Or is it just a change in beneficiary?

Her investments in the RRIF should be marked to market and either cashed out, or transferred to you. The capital gain is paid through her estate (tax wise) and you're left with the value of the shares on her date of death as your cost base.

In many cases, gifting shares of public corporations as a charitable contribution through her estate can be better than cashing out and paying fees etc.

Have the assets cleared probate at this time?

Are you including the transfer of assets in your income? If so, you shouldn't be.

Hope this helps - give me a bit more detail and I'm sure I can be more helpful



wpgdude

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #402 on: December 09, 2015, 04:03:30 PM »
Thank you for the reply CPA CB. 
Here is some more clarity on the situation.  My mother upon her retirement a few years earlier chose the buyout option from her employer and chose to purchase two annuities with the funds.  The annuities had 15 year guarantees with both myself and my sister as benefactors.  One of the annuities was to be paid out in full upon her death, which both my sister and I have received, while the second annuity allowed us to transfer the payments into mine and my sister's names.  (Gives me another source of investing income for the next 13 years)

Her RRIF's were cashed out upon the advice of her financial adviser, with the cost basis being the value of her funds on the day of her death.  All of these funds have been transferred into an estate account and my sister and I have only used this account to pay for matters with regards to settling my mother's affairs.  We don't want to touch it until her 2015 taxes are filed.

Almost all of her estate cleared probate a few months ago.  The only thing left is some farm land in Alberta, but it appears that farm land can be passed on tax free from a parent to child as long as the land has only ever been used for farming.  The land was appraised for sale in the fall of 2014 so we are using that as our cost basis going forward.

So I know that the estate is responsible for the tax bill of her RRIF and any other investments/possessions etc.  I am also positive that I am responsible personally for the income that has and will flow to me from the annuities as they had a 15 year guarantee with myself as one of the benefactors. 

I am not familiar with the term "Rights and Things return", but after a quick google search it doesn't sound as if much or any income would fall under this scenario, but we will let a tax professional handle the final return.

I only learned about the gifting of shares after the RRIF was cashed out, so unfortunately this doesn't seem to be an option for us now.

Thank you for your advice so far and any other help that you can give in terms of charitable giving, and which party might be best to give the giving. 

Heckler

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #403 on: December 10, 2015, 01:50:06 AM »
Is there any reason to not have every one of us sign this petition to increase the TFSA limit back to $10k?

https://petitions.parl.gc.ca/en/Petition/Details?Petition=e-3


Quote
Petition to the Minister of Finance
Whereas:
About half of adult Canadians currently have Tax Free Savings Accounts (TFSAs), which is a very high level of participation in a program that has only been available since 2009. Of those TFSA holders who have taken advantage of the current $10,000 limit, 60% earn $60,000 per year or less, demonstrating that the current TFSA limit is not a tool only for the "rich";

TFSAs are an excellent retirement savings tool for seniors who can no longer take advantage of Registered Retirement Savings Plans (RRSPS), and also for young Canadians who need a tax-effective means of saving for their future;

Opinion poll data has repeatedly shown that a majority of Canadians support retaining the current TFSA limit, and this support is consistent across age groups, income levels and regions of Canada; and
Canadians currently pay 43% of their income in taxes - more than they pay for food, shelter and clothing combined. Many of these tax dollars go to provide very generous pensions for government employees - pensions that the 80% of Canadians who do not work for government cannot afford for themselves but to which they contribute tens of billions of dollars every year. Retaining the TFSA limit of $10,000 is the least the government can do to help the vast majority of Canadians working in the private sector to save for a decent retirement for themselves and their families.

We, the undersigned, residents of Canada, request (or call upon) the Minister of Finance to leave the Tax Free Savings Account (TFSA) limit at $10,000 annually to ensure fairness for all working Canadians.

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #404 on: December 10, 2015, 09:11:34 AM »
Is there any reason to not have every one of us sign this petition to increase the TFSA limit back to $10k?

https://petitions.parl.gc.ca/en/Petition/Details?Petition=e-3


Quote
Petition to the Minister of Finance
Whereas:
About half of adult Canadians currently have Tax Free Savings Accounts (TFSAs), which is a very high level of participation in a program that has only been available since 2009. Of those TFSA holders who have taken advantage of the current $10,000 limit, 60% earn $60,000 per year or less, demonstrating that the current TFSA limit is not a tool only for the "rich";

TFSAs are an excellent retirement savings tool for seniors who can no longer take advantage of Registered Retirement Savings Plans (RRSPS), and also for young Canadians who need a tax-effective means of saving for their future;

Opinion poll data has repeatedly shown that a majority of Canadians support retaining the current TFSA limit, and this support is consistent across age groups, income levels and regions of Canada; and
Canadians currently pay 43% of their income in taxes - more than they pay for food, shelter and clothing combined. Many of these tax dollars go to provide very generous pensions for government employees - pensions that the 80% of Canadians who do not work for government cannot afford for themselves but to which they contribute tens of billions of dollars every year. Retaining the TFSA limit of $10,000 is the least the government can do to help the vast majority of Canadians working in the private sector to save for a decent retirement for themselves and their families.

We, the undersigned, residents of Canada, request (or call upon) the Minister of Finance to leave the Tax Free Savings Account (TFSA) limit at $10,000 annually to ensure fairness for all working Canadians.

From a purely selfish perspective, keeping the TSFA limit where it currently sits would be in my best interests. But I think there are broader interests at stake here, which are well explained in several analysis such as these two below, which both conclude the same thing:

"There is absolutely no case on either economic or equity grounds for the doubling of TFSA contribution limits. The great majority of Canadians would enjoy no significant benefits. In fact, they would bear the burdens of an expanded TFSA by enduring reduced public services or bearing the increased taxes needed to offset the lost revenues," economist Rhys Kesselman, wrote in the PBO report.

http://d3n8a8pro7vhmx.cloudfront.net/broadbent/legacy_url/303/tfsa_report-en.pdf?1431294008

http://www.pbo-dpb.gc.ca/web/default/files/files/files/TFSA_2015_EN.pdf
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #405 on: December 10, 2015, 02:54:37 PM »
Is there any reason to not have every one of us sign this petition to increase the TFSA limit back to $10k?

https://petitions.parl.gc.ca/en/Petition/Details?Petition=e-3


Quote
Petition to the Minister of Finance
Whereas:
About half of adult Canadians currently have Tax Free Savings Accounts (TFSAs), which is a very high level of participation in a program that has only been available since 2009. Of those TFSA holders who have taken advantage of the current $10,000 limit, 60% earn $60,000 per year or less, demonstrating that the current TFSA limit is not a tool only for the "rich";

TFSAs are an excellent retirement savings tool for seniors who can no longer take advantage of Registered Retirement Savings Plans (RRSPS), and also for young Canadians who need a tax-effective means of saving for their future;

Opinion poll data has repeatedly shown that a majority of Canadians support retaining the current TFSA limit, and this support is consistent across age groups, income levels and regions of Canada; and
Canadians currently pay 43% of their income in taxes - more than they pay for food, shelter and clothing combined. Many of these tax dollars go to provide very generous pensions for government employees - pensions that the 80% of Canadians who do not work for government cannot afford for themselves but to which they contribute tens of billions of dollars every year. Retaining the TFSA limit of $10,000 is the least the government can do to help the vast majority of Canadians working in the private sector to save for a decent retirement for themselves and their families.

We, the undersigned, residents of Canada, request (or call upon) the Minister of Finance to leave the Tax Free Savings Account (TFSA) limit at $10,000 annually to ensure fairness for all working Canadians.

From a purely selfish perspective, keeping the TSFA limit where it currently sits would be in my best interests. But I think there are broader interests at stake here, which are well explained in several analysis such as these two below, which both conclude the same thing:

"There is absolutely no case on either economic or equity grounds for the doubling of TFSA contribution limits. The great majority of Canadians would enjoy no significant benefits. In fact, they would bear the burdens of an expanded TFSA by enduring reduced public services or bearing the increased taxes needed to offset the lost revenues," economist Rhys Kesselman, wrote in the PBO report.

http://d3n8a8pro7vhmx.cloudfront.net/broadbent/legacy_url/303/tfsa_report-en.pdf?1431294008

http://www.pbo-dpb.gc.ca/web/default/files/files/files/TFSA_2015_EN.pdf

Paging Dr. Keynes, Paging Dr. Keynes

First, and foremost - the Broadbent Institute, and Mr. Kesselman. Passing this off as anything other than completely biased information is nonsensical. Similarly with the PBO - hey as the government we think we do a great job, so if you give us more we can do even better.

This is no different than emailing CRA (if they even accepted email, they don't.) and saying "gee, what should I pay this year?" Hey, Dr. Suzuki, what kind of SUV should I buy?

The general falsehood here is based on the writings of John Maynard Keynes, who is a notable economist who demonstrated a theoretically correct money multiplier effect of government spending on GDP. I.e. $1 of government spending would show up as $1.25 (hypothetically) in GDP figures.

This theory has never been proven to occur in the real world.

I take issue with appeals to a 'greater good' or a 'common goal' etc. These often evoke a sense of duty (when they shouldn't) and completely ignore rationality. Keynesian economics is oft invoked by the very left leaning Broadbent Institute as a means for 'progressive' change.

Currently (at least in the have not Province of Ontario) income tax rates are about to hit a whopping 53.53% on the highest bracket. Oh, and if you pay CPP/EI add quite a bit to this. Oh, and if you spend your disposable income, add another 13% to this on what's left.

Currently, taxes are higher than housing costs, clothing, and food combined for the average Canadian household.

The TFSA, and a measly $4,500 dollar per annum increase in contribution room provides at least an incentive to save and invest their money for retirement. This is entirely opposite to the current tax cut on the middle class as proposed by Trudeau, as that only applies to the 1/3rd of Canadians who even reach this bracket.

I struggle to find any rationale where making a select group pay for 50% of the taxes collected in Canada beneficial. Similarly, I struggle to find any rationale to find any rationale to cut taxes on a broad group, which excludes both the 'rich' and the 'poor'. Well. Other than votes.


 







Margie

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #406 on: December 10, 2015, 03:02:00 PM »
Can you shed some light on the new "children's tax benefit"?

I just watched a video from Globe and Mail and the math looks incredibly generous.  Particularly the tax free part! 
My children are 10 + 13, household income of about 85 000.
Thanks!
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #407 on: December 15, 2015, 09:27:22 AM »
Can you shed some light on the new "children's tax benefit"?

I just watched a video from Globe and Mail and the math looks incredibly generous.  Particularly the tax free part! 
My children are 10 + 13, household income of about 85 000.
Thanks!

Hi there -

I can try! Although the details are a bit clandestine.

The new system is confusing due to this idea of 'means-testing' which isn't directly being disclosed. However, a Mathematics Prof at U of Ottawa came up with a formula which has been used as the back-end for the following website calculator: http://lepinski.net/lib-childcare-calc/

Your circumstances here would dictate a total benefit of $5,150 per annum, tax free.

My understanding is that this is to replace your old UCCB benefits ($1,440 per year), old Childcare Tax Benefit (probably around $1,000 tax free) and additional tax credits available to claim for dependents.

I would suggest it's likely revenue positive for you, as your family is right in that middle-class income tax bracket the Liberals were aiming for so heavily in the election.

The downside is that the plan really is unclear in its formulation, and cuts out everyone with family income over the $190,000 area (who would have at least around 50% of the UCCB previously after tax).










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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #408 on: December 15, 2015, 10:46:07 AM »
Hi! Thanks for lending your time and expertise.

I am a single parent with two kids, one with a disability. I finished at university this year. I earn $60,000 per year and thanks to the kids, the disability, and university I have reliably had more nonrefundable credits, provincially and federally, than I can claim for the last... long time. I predict that this will continue for a few more years. at least until my school credits run out.

my question: currently I am ignoring my rrsp's, working on maxxing out my tfsa. I don't need to reduce my tax burden at present, and tax-sheltered growth is awesome. once I run out of contribution room i'll shift to the rrsp space. Is that the best strategy?

Also, I saw that you recommended against equities in an RRSP. so far all my investments are ETFs through Questrade. When I start my RRSP, what do I put in it for optimum tax advantages?

Thanks again!
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #409 on: December 16, 2015, 12:46:58 AM »
snacky, do you have the RDSP for your kid? If not, that first and foremost!! Let me know if you need help with the application.

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #410 on: December 16, 2015, 08:43:35 AM »
@scrubbyfish, I don't, as I have (not unreasonable) expectations that he will be able to have a job and get along ok when he's an adult. I won't really know how he will be until after puberty, so it's a calculated risk.

also I had him quite young, so if he needs support as an adult i'll still be working and able to help him for many years. If I retire at 55 (that's the plan) he'll be in his mid 30's.

So I have considered all this and think it's ok. Hopefully i'm not wrong!
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scrubbyfish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #411 on: December 16, 2015, 10:28:55 AM »
Hi snacky,

Even if all of those things prove true (as I expect they are for my son, too) he would still benefit from the RDSP in one or more ways. Also, the disability tax credit includes people with disabilities working in adulthood. It doesn't rely on inability to work, is flexible in disbursements permitted, can be rolled into other options, can be invested, and brings a massive grant up front each year, making your dollars many more. I don't mean to push it, though! If ever you decide you would like to pursue it, and need help navigating the language, process, etc, I will welcome your PM :)  If you decide not to, no problem!

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #412 on: December 16, 2015, 12:34:13 PM »
New question. What is the best strategy to minimize tax burden after selling an income property? The property is a duplex in BC and has no mortgage. Property is owned between 3 family members (3 different households). The lowest income owner claims, and lives off the current rental income. She is also a senior on disability and does not own any other property. She lives with owner #2. Her income is <$40K/yr. Can she claim this was her "primary residence" and pay no tax, since she owns no other property?

daverobev

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #413 on: December 16, 2015, 01:23:05 PM »
New question. What is the best strategy to minimize tax burden after selling an income property? The property is a duplex in BC and has no mortgage. Property is owned between 3 family members (3 different households). The lowest income owner claims, and lives off the current rental income. She is also a senior on disability and does not own any other property. She lives with owner #2. Her income is <$40K/yr. Can she claim this was her "primary residence" and pay no tax, since she owns no other property?

Duplex, never lived in by them? No, they can't claim primary residence. If ownership is split 3 ways, AFAIK income should be 'claimed' based on %age ownership. Anything else is tax fraud, unless incorporated with shareholder classes and differing dividends for the different classes.
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #414 on: December 17, 2015, 07:41:36 AM »
Hi snacky,

Even if all of those things prove true (as I expect they are for my son, too) he would still benefit from the RDSP in one or more ways. Also, the disability tax credit includes people with disabilities working in adulthood. It doesn't rely on inability to work, is flexible in disbursements permitted, can be rolled into other options, can be invested, and brings a massive grant up front each year, making your dollars many more. I don't mean to push it, though! If ever you decide you would like to pursue it, and need help navigating the language, process, etc, I will welcome your PM :)  If you decide not to, no problem!

Hi Snacky

I absolutely could not agree more with Scrubbyfish's comments. The RDSP is an excellent way to save for your child's future, as disabled persons who are able to work still face a significant reduction in earning capacity in their lifetime, and forced early retirement.

There really is no reason not to!

Cheers,

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #415 on: December 17, 2015, 07:49:55 AM »
New question. What is the best strategy to minimize tax burden after selling an income property? The property is a duplex in BC and has no mortgage. Property is owned between 3 family members (3 different households). The lowest income owner claims, and lives off the current rental income. She is also a senior on disability and does not own any other property. She lives with owner #2. Her income is <$40K/yr. Can she claim this was her "primary residence" and pay no tax, since she owns no other property?

No, she definitely can't claim this as a principal residence if she's never lived here, nor entertained the possibility of living in the property. Strict rental properties are ineligible for this.

In addition, I agree that the income should be split amongst the owners.

A rollover into a company is possible and could be used to crystallize the small business capital gains deduction. But it has to be done very specifically as an active business, rather than just a passive investment.


daverobev

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #416 on: December 17, 2015, 11:49:18 AM »
New question. What is the best strategy to minimize tax burden after selling an income property? The property is a duplex in BC and has no mortgage. Property is owned between 3 family members (3 different households). The lowest income owner claims, and lives off the current rental income. She is also a senior on disability and does not own any other property. She lives with owner #2. Her income is <$40K/yr. Can she claim this was her "primary residence" and pay no tax, since she owns no other property?

No, she definitely can't claim this as a principal residence if she's never lived here, nor entertained the possibility of living in the property. Strict rental properties are ineligible for this.

In addition, I agree that the income should be split amongst the owners.

A rollover into a company is possible and could be used to crystallize the small business capital gains deduction. But it has to be done very specifically as an active business, rather than just a passive investment.

Do you have more info on the small business stuff? We are - very vaguely - considering purchasing a commercial property with potential to have two rental units above it. The downstairs would be run as a business - at least, that's the plan. How does it work if we just let the downstairs and upstairs out? What entails an 'active' business? If you owned 3-4 rentals...? Commercial, residential?

Thanks!
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #417 on: December 17, 2015, 12:25:35 PM »
New question. What is the best strategy to minimize tax burden after selling an income property? The property is a duplex in BC and has no mortgage. Property is owned between 3 family members (3 different households). The lowest income owner claims, and lives off the current rental income. She is also a senior on disability and does not own any other property. She lives with owner #2. Her income is <$40K/yr. Can she claim this was her "primary residence" and pay no tax, since she owns no other property?

In addition, I agree that the income should be split amongst the owners.


Thanks for the info. DH keeps telling me the principal residence thing is a gray area, which I thought sounded suspicious.

WRT to the income you referred to, do you mean the rental income? Or the income that will result from selling it?

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #418 on: December 18, 2015, 07:12:16 AM »
New question. What is the best strategy to minimize tax burden after selling an income property? The property is a duplex in BC and has no mortgage. Property is owned between 3 family members (3 different households). The lowest income owner claims, and lives off the current rental income. She is also a senior on disability and does not own any other property. She lives with owner #2. Her income is <$40K/yr. Can she claim this was her "primary residence" and pay no tax, since she owns no other property?

In addition, I agree that the income should be split amongst the owners.


Thanks for the info. DH keeps telling me the principal residence thing is a gray area, which I thought sounded suspicious.

WRT to the income you referred to, do you mean the rental income? Or the income that will result from selling it?

Both.

It is a gray area, in the sense that there are few hard and fast rules on the determination. The biggest one though is that it does need to be used at least in part as a personal property.

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #419 on: December 18, 2015, 09:05:48 AM »
New question. What is the best strategy to minimize tax burden after selling an income property? The property is a duplex in BC and has no mortgage. Property is owned between 3 family members (3 different households). The lowest income owner claims, and lives off the current rental income. She is also a senior on disability and does not own any other property. She lives with owner #2. Her income is <$40K/yr. Can she claim this was her "primary residence" and pay no tax, since she owns no other property?

No, she definitely can't claim this as a principal residence if she's never lived here, nor entertained the possibility of living in the property. Strict rental properties are ineligible for this.

In addition, I agree that the income should be split amongst the owners.

A rollover into a company is possible and could be used to crystallize the small business capital gains deduction. But it has to be done very specifically as an active business, rather than just a passive investment.

Do you have more info on the small business stuff? We are - very vaguely - considering purchasing a commercial property with potential to have two rental units above it. The downstairs would be run as a business - at least, that's the plan. How does it work if we just let the downstairs and upstairs out? What entails an 'active' business? If you owned 3-4 rentals...? Commercial, residential?

Thanks!

Broadly speaking,

The best bet is sticking with commercial real estate - as renting out units at a cost which is deductible from another company's 'active business income' slots the rental income into this category for the company.

The other option is employment of more than 5 full-time employees throughout the year. So it would then be a larger enterprise and considered an active business, rather than just passive investment income.

The difference is substantial, as triggering the QSBCD is significant in terms of tax savings ($800k in appreciation of the shares of your company). The caveat here is that the assets of the business need to be used to generate 'active business income' (50% in the preceding two years, and 90% at the time of sale). This can effectively wipe out $200k in taxes on a per partner basis.


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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #420 on: December 22, 2015, 06:05:21 AM »
What are the benefits of a taxable investment account holding Canadian equity vs maxing our RSP? 

We are long time married, ~40 y.o., and share finances equally, although I make 2.5x her salary. Mortgage is paid off in January, so 2016 will be the first year we can invest heavily (~70% of income planned).

Currently, we plan to max our TFSAs with VCN in the next few years, as that's a no brainer. My RRSP is 4x larger than hers, and I opened a spousal RSP this past year to equalize our taxable retirement income by ending up with equal RSP values of ~400k each in 10 years or less. 

We each have ~100k accumulated RSP room because we only saved 5-10% over the past 20 years (but mortgage free on 450k townhouse!), and by my calculations we will not be able to max both our RSPs in addition to our TFSAs in the next ten years.

We plan for combined 50k taxable income in retirement.


Question is - should I be opening a taxable investment account, or continue with my plan to use just our RSP accounts in addition to TFSAs?   Taxable just sounds wrong, unless RSPs are maxed already.  An unexpected inheritance will likely change that, but we're not planning for one.
 

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #421 on: December 22, 2015, 07:34:48 AM »
What are the benefits of a taxable investment account holding Canadian equity vs maxing our RSP? 

We are long time married, ~40 y.o., and share finances equally, although I make 2.5x her salary. Mortgage is paid off in January, so 2016 will be the first year we can invest heavily (~70% of income planned).

Currently, we plan to max our TFSAs with VCN in the next few years, as that's a no brainer. My RRSP is 4x larger than hers, and I opened a spousal RSP this past year to equalize our taxable retirement income by ending up with equal RSP values of ~400k each in 10 years or less. 

We each have ~100k accumulated RSP room because we only saved 5-10% over the past 20 years (but mortgage free on 450k townhouse!), and by my calculations we will not be able to max both our RSPs in addition to our TFSAs in the next ten years.

We plan for combined 50k taxable income in retirement.


Question is - should I be opening a taxable investment account, or continue with my plan to use just our RSP accounts in addition to TFSAs?   Taxable just sounds wrong, unless RSPs are maxed already.  An unexpected inheritance will likely change that, but we're not planning for one.

It really depends of your actual tax bracket vs retirement tax bracket. If like me, you actual tax rate is higher than expected retirement one, RSP is a no-brainer. Also consider your A.A. as RSP is a better place for US and Int. holdings and taxable account is better for Canadians holdings. I was in a similar situation lately (almost paid-off 350k$ house, RSP maxed out but TFSA with some room available).  We are now maxing out TFSA over the next 5 years and keep an A.A. of 30-35%Canadian, 45%US and 20-25%Int.
"The real reason this blog exists, is simply to save the entire human race from destroying itself through overconsumption of its own habitat"

-MMM

Joan-eh?

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #422 on: December 28, 2015, 06:52:01 PM »
Hi there! What do you know of flow through funds? Have you seen them used?

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #423 on: January 04, 2016, 02:51:03 PM »
Hi there! What do you know of flow through funds? Have you seen them used?
Hi Joan,

In what context?

Cheers,

SweetLife

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #424 on: January 05, 2016, 01:15:37 PM »
Hi there CPA CB!!! So glad to see you are still posting :)
Here is my question - I inherited 1/2 acre of land (my brother inherited the other half) - from my Mom's estate. There is no house on the land it is on a piece of property that my brother inherited. This is a severed "lot" ...

My brother would like to buy my half (in fact I want him to buy it too!) - when my Mom died in 2011 the land was priced at $60,000 - if I sell my half to him will I have to pay taxes on what he gives me? (Likely $20,000)?

THank you!!! Hope you had a wonderful New Years! 
Typos will happen, corrections appreciated, or just ignore ;)

Le Barbu

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #425 on: January 05, 2016, 01:34:52 PM »
Hi there CPA CB!!! So glad to see you are still posting :)
Here is my question - I inherited 1/2 acre of land (my brother inherited the other half) - from my Mom's estate. There is no house on the land it is on a piece of property that my brother inherited. This is a severed "lot" ...

My brother would like to buy my half (in fact I want him to buy it too!) - when my Mom died in 2011 the land was priced at $60,000 - if I sell my half to him will I have to pay taxes on what he gives me? (Likely $20,000)?

THank you!!! Hope you had a wonderful New Years!

You normaly pay tax on capital gain wich is calculated by today's value minus 2011 value. Let's say "your" half worth 20,000$ back in 2011 and today it worth 30,000$, capital gain is 10,000$ but you will pay taxes on 5,000$ (50% of capital gain is taxable).
"The real reason this blog exists, is simply to save the entire human race from destroying itself through overconsumption of its own habitat"

-MMM

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #426 on: January 07, 2016, 07:46:33 AM »
Hi there CPA CB!!! So glad to see you are still posting :)
Here is my question - I inherited 1/2 acre of land (my brother inherited the other half) - from my Mom's estate. There is no house on the land it is on a piece of property that my brother inherited. This is a severed "lot" ...

My brother would like to buy my half (in fact I want him to buy it too!) - when my Mom died in 2011 the land was priced at $60,000 - if I sell my half to him will I have to pay taxes on what he gives me? (Likely $20,000)?

THank you!!! Hope you had a wonderful New Years!

Hi Sweetlife -

What happens in an estate is that assets such as this are 'marked to market' on the date of death, and therefore your effective cost base would be your portion of the $60,000 (so, $30,000).

The issue is - you need to make sure you receive the fair market value today as payment for the land. Otherwise, you open yourself and your brother up to double taxation. Here's what I mean -

Let's say, the property is worth $100,000 today, so your portion is worth $50k. If he only pays you $20,000, it becomes an issue in terms of taxes. CRA will come in and change what you receive from the $20k to the $50k (so you'll pay taxes), but keep his cost base at the $20k, so he'll have to pay taxes on this amount as well.

Just get an assessment done to ensure you receive a value similar to fair market value and you'll be good!

Any taxes will be at 50% of your marginal rate on any funds received over $30,000. So if you get $50k - then you'll pay taxes on half the gain, or $10,000.

Hope this helps!




Le Barbu

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #427 on: January 07, 2016, 09:12:15 AM »
Hi there CPA CB!!! So glad to see you are still posting :)
Here is my question - I inherited 1/2 acre of land (my brother inherited the other half) - from my Mom's estate. There is no house on the land it is on a piece of property that my brother inherited. This is a severed "lot" ...

My brother would like to buy my half (in fact I want him to buy it too!) - when my Mom died in 2011 the land was priced at $60,000 - if I sell my half to him will I have to pay taxes on what he gives me? (Likely $20,000)?

THank you!!! Hope you had a wonderful New Years!

Hi Sweetlife -

What happens in an estate is that assets such as this are 'marked to market' on the date of death, and therefore your effective cost base would be your portion of the $60,000 (so, $30,000).

The issue is - you need to make sure you receive the fair market value today as payment for the land. Otherwise, you open yourself and your brother up to double taxation. Here's what I mean -

Let's say, the property is worth $100,000 today, so your portion is worth $50k. If he only pays you $20,000, it becomes an issue in terms of taxes. CRA will come in and change what you receive from the $20k to the $50k (so you'll pay taxes), but keep his cost base at the $20k, so he'll have to pay taxes on this amount as well.

Just get an assessment done to ensure you receive a value similar to fair market value and you'll be good!

Any taxes will be at 50% of your marginal rate on any funds received over $30,000. So if you get $50k - then you'll pay taxes on half the gain, or $10,000.

Hope this helps!

Intersting, lets say Sweetlife is in the 38% marginal tax bracket (10,000$ @38%) the taxes to be paid will be 3,800$?
"The real reason this blog exists, is simply to save the entire human race from destroying itself through overconsumption of its own habitat"

-MMM

NoCantInCanada

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #428 on: January 07, 2016, 10:57:06 AM »
New question. What is the best strategy to minimize tax burden after selling an income property? The property is a duplex in BC and has no mortgage. Property is owned between 3 family members (3 different households). The lowest income owner claims, and lives off the current rental income. She is also a senior on disability and does not own any other property. She lives with owner #2. Her income is <$40K/yr. Can she claim this was her "primary residence" and pay no tax, since she owns no other property?

No, she definitely can't claim this as a principal residence if she's never lived here, nor entertained the possibility of living in the property. Strict rental properties are ineligible for this.

In addition, I agree that the income should be split amongst the owners.

A rollover into a company is possible and could be used to crystallize the small business capital gains deduction. But it has to be done very specifically as an active business, rather than just a passive investment.

Do you have more info on the small business stuff? We are - very vaguely - considering purchasing a commercial property with potential to have two rental units above it. The downstairs would be run as a business - at least, that's the plan. How does it work if we just let the downstairs and upstairs out? What entails an 'active' business? If you owned 3-4 rentals...? Commercial, residential?

Thanks!

Broadly speaking,

The best bet is sticking with commercial real estate - as renting out units at a cost which is deductible from another company's 'active business income' slots the rental income into this category for the company.

The other option is employment of more than 5 full-time employees throughout the year. So it would then be a larger enterprise and considered an active business, rather than just passive investment income.

The difference is substantial, as triggering the QSBCD is significant in terms of tax savings ($800k in appreciation of the shares of your company). The caveat here is that the assets of the business need to be used to generate 'active business income' (50% in the preceding two years, and 90% at the time of sale). This can effectively wipe out $200k in taxes on a per partner basis.

Just wanted to add my two-cents on this.

The turning of "passive rental income" to "active rental income" only applies to "associated corporations" (too technical to get into, but essentially two corporations owned by the same shareholders).  Rental income earned from a non-associated corporation is treated as "passive income", unless the employees test is met.  Putting a commercial rental property into a corporation will not qualify one for the capital gains exemption.  So please be aware of this.

In addition, as a result of the Canadian tax increases in 2016 there is now an even more significant tax cost on a flow-through basis (income earned and taxed in a corporation then distributed to the shareholder).  Creating a corporation to hold passive investments will result in an increase in tax rather than just holding the investment personally.  However, when dealing with commercial or residential real estate investments there may be liability exposures that would warrant the introduction of a corporation.

My first post, glad I came across the forum and look forward to a few more.

Cheers

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #429 on: January 07, 2016, 12:33:02 PM »
Hi there CPA CB!!! So glad to see you are still posting :)
Here is my question - I inherited 1/2 acre of land (my brother inherited the other half) - from my Mom's estate. There is no house on the land it is on a piece of property that my brother inherited. This is a severed "lot" ...

My brother would like to buy my half (in fact I want him to buy it too!) - when my Mom died in 2011 the land was priced at $60,000 - if I sell my half to him will I have to pay taxes on what he gives me? (Likely $20,000)?

THank you!!! Hope you had a wonderful New Years!

Hi Sweetlife -

What happens in an estate is that assets such as this are 'marked to market' on the date of death, and therefore your effective cost base would be your portion of the $60,000 (so, $30,000).

The issue is - you need to make sure you receive the fair market value today as payment for the land. Otherwise, you open yourself and your brother up to double taxation. Here's what I mean -

Let's say, the property is worth $100,000 today, so your portion is worth $50k. If he only pays you $20,000, it becomes an issue in terms of taxes. CRA will come in and change what you receive from the $20k to the $50k (so you'll pay taxes), but keep his cost base at the $20k, so he'll have to pay taxes on this amount as well.

Just get an assessment done to ensure you receive a value similar to fair market value and you'll be good!

Any taxes will be at 50% of your marginal rate on any funds received over $30,000. So if you get $50k - then you'll pay taxes on half the gain, or $10,000.

Hope this helps!

Intersting, lets say Sweetlife is in the 38% marginal tax bracket (10,000$ @38%) the taxes to be paid will be 3,800$?

$3,800 on a $20k capital gain - yes.

Joan-eh?

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #430 on: January 07, 2016, 07:07:39 PM »
Hi there! What do you know of flow through funds? Have you seen them used?
Hi Joan,

In what context?

Cheers,

It's my understanding that the mining industry and CRA offer flow-through shares where they shareholder benefits from the expenses, in order to reduce taxes. And that if one has and influx of income they could be useful. I'd be really curious to know what you think, not many people talk about this

NoCantInCanada

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #431 on: January 07, 2016, 08:36:34 PM »
Hi there! What do you know of flow through funds? Have you seen them used?
Hi Joan,

In what context?

Cheers,

It's my understanding that the mining industry and CRA offer flow-through shares where they shareholder benefits from the expenses, in order to reduce taxes. And that if one has and influx of income they could be useful. I'd be really curious to know what you think, not many people talk about this


I'll throw another of my 2 cents in here. 

Flow through shares were introduced in Canada over a half-century ago to stimulate investment in resource exploration corporations.  Essentially these corporations (or more often flow-through limited partnerships) renounce the exploration and development expenses to the investors holding their shares.  These corporations often have no need for these expenses due to large taxable losses.  The investors can then take these expenses as a reduction in their taxable income in the year.

To provide a simplified example, let's assume an investor in the highest marginal tax bracket of 50% (a hypothetical bracket but in 2016 many provinces will exceed 50%).  The investor puts in $10,000 into the investment. 

In the year of investment (let's say 2016) the investor can generally expect the full amount of the investment basis to be returned through the renunciation of expenses.  As such the investor would receive a deduction from income in the amount of $10,000 from income, and would reduce their taxes payable by $5,000.  This potentially reduces their risk in the investment as they have received a refund of half their investment.

The cost base in the investment is reduced to nil in flow through shares as a result of the renunciation.  Assuming the shares retain their value of $10,000.  When they are sold this would generate a capital gain, which is included at 50%, for a taxable capital gain of $5,000.  The taxes payable on this would be $2,500 (50% x $5,000). 

An investor in this situation is ahead $2,500.  They received a refund of $5,000 and paid only $2,500 in tax.  They also received their investment back.  Sounds great right?  Why isn't everyone doing this?

These products are a favourite for investment brokers, they often come with a very healthy commission to those who sell them.  I would strongly recommend that you understand these investments fully before throwing money into them.  Many of people I have talked with have only been able to remember the great tax refund they received, but not how they ultimately did on the investment (which may have been at a large loss).

These investments carry significant risk.  In our example we assumed that the investor receives their $10,000 back.  However, this is often not the case.  These entities often post very large losses and their value is often significantly less than the $10,000 after the renunciation of expenses - even with the renunciation they may still have lost money.   

A very flashy investment product that promises a large tax refund.  But, I am a big fan of the saying "Do not let the tax tail wag the dog".  Make sure you understand the risk associated with these investments before entering them.  If you take a look at the literature produced by the entities that distribute these investments they almost always assume the investment retains it's value, which is rarely the case. 

These investments do work in the right situations but you must look at each situation on it's own facts.  (and if you are not in the highest income bracket likely not a consideration).

Hope this helps a little.  Let me know if anything above isn't clear.

Cheers.   

SweetLife

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #432 on: January 08, 2016, 04:46:36 PM »
Hi there CPA CB!!! So glad to see you are still posting :)
Here is my question - I inherited 1/2 acre of land (my brother inherited the other half) - from my Mom's estate. There is no house on the land it is on a piece of property that my brother inherited. This is a severed "lot" ...

My brother would like to buy my half (in fact I want him to buy it too!) - when my Mom died in 2011 the land was priced at $60,000 - if I sell my half to him will I have to pay taxes on what he gives me? (Likely $20,000)?

THank you!!! Hope you had a wonderful New Years!

Hi Sweetlife -

What happens in an estate is that assets such as this are 'marked to market' on the date of death, and therefore your effective cost base would be your portion of the $60,000 (so, $30,000).

The issue is - you need to make sure you receive the fair market value today as payment for the land. Otherwise, you open yourself and your brother up to double taxation. Here's what I mean -

Let's say, the property is worth $100,000 today, so your portion is worth $50k. If he only pays you $20,000, it becomes an issue in terms of taxes. CRA will come in and change what you receive from the $20k to the $50k (so you'll pay taxes), but keep his cost base at the $20k, so he'll have to pay taxes on this amount as well.

Just get an assessment done to ensure you receive a value similar to fair market value and you'll be good!

Any taxes will be at 50% of your marginal rate on any funds received over $30,000. So if you get $50k - then you'll pay taxes on half the gain, or $10,000.

Hope this helps!

Intersting, lets say Sweetlife is in the 38% marginal tax bracket (10,000$ @38%) the taxes to be paid will be 3,800$?

$3,800 on a $20k capital gain - yes.



Thank you both!!! I will print this out to show my brother next time it comes up :) He tends to steam roll over me so this way hopefully it won't go south :)





Typos will happen, corrections appreciated, or just ignore ;)

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #433 on: January 09, 2016, 07:07:05 AM »
Hi there! What do you know of flow through funds? Have you seen them used?
Hi Joan,

In what context?

Cheers,

It's my understanding that the mining industry and CRA offer flow-through shares where they shareholder benefits from the expenses, in order to reduce taxes. And that if one has and influx of income they could be useful. I'd be really curious to know what you think, not many people talk about this


I'll throw another of my 2 cents in here. 

Flow through shares were introduced in Canada over a half-century ago to stimulate investment in resource exploration corporations.  Essentially these corporations (or more often flow-through limited partnerships) renounce the exploration and development expenses to the investors holding their shares.  These corporations often have no need for these expenses due to large taxable losses.  The investors can then take these expenses as a reduction in their taxable income in the year.

To provide a simplified example, let's assume an investor in the highest marginal tax bracket of 50% (a hypothetical bracket but in 2016 many provinces will exceed 50%).  The investor puts in $10,000 into the investment. 

In the year of investment (let's say 2016) the investor can generally expect the full amount of the investment basis to be returned through the renunciation of expenses.  As such the investor would receive a deduction from income in the amount of $10,000 from income, and would reduce their taxes payable by $5,000.  This potentially reduces their risk in the investment as they have received a refund of half their investment.

The cost base in the investment is reduced to nil in flow through shares as a result of the renunciation.  Assuming the shares retain their value of $10,000.  When they are sold this would generate a capital gain, which is included at 50%, for a taxable capital gain of $5,000.  The taxes payable on this would be $2,500 (50% x $5,000). 

An investor in this situation is ahead $2,500.  They received a refund of $5,000 and paid only $2,500 in tax.  They also received their investment back.  Sounds great right?  Why isn't everyone doing this?

These products are a favourite for investment brokers, they often come with a very healthy commission to those who sell them.  I would strongly recommend that you understand these investments fully before throwing money into them.  Many of people I have talked with have only been able to remember the great tax refund they received, but not how they ultimately did on the investment (which may have been at a large loss).

These investments carry significant risk.  In our example we assumed that the investor receives their $10,000 back.  However, this is often not the case.  These entities often post very large losses and their value is often significantly less than the $10,000 after the renunciation of expenses - even with the renunciation they may still have lost money.   

A very flashy investment product that promises a large tax refund.  But, I am a big fan of the saying "Do not let the tax tail wag the dog".  Make sure you understand the risk associated with these investments before entering them.  If you take a look at the literature produced by the entities that distribute these investments they almost always assume the investment retains it's value, which is rarely the case. 

These investments do work in the right situations but you must look at each situation on it's own facts.  (and if you are not in the highest income bracket likely not a consideration).

Hope this helps a little.  Let me know if anything above isn't clear.

Cheers.

Everything our newest and presumed CA says above is correct.

In addition - the CRA heavily audits FTS as it's been a subject of abuse previously. This can mean an arbitrary change to your tax return that would reverse the expenses and capital flow through and a change to interest or a deemed dividend, etc.

Personally I've never really recommended people get into these vehicles, or mining stocks in general. The Financial Statements are prepared under a specific set of rules which make it all but impossible to compare to other stocks unless you are very financially sophisticated.

CPA CB

Joan-eh?

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #434 on: January 09, 2016, 05:52:38 PM »
Thank you so much for the details! Do you have first hand experience with increased audits when people use them?

I'm further called to question when it might be worth taking an unpaid leave because of taxes.
I'm in a once in a lifetime situation in which I will hit the 51% tax bracket. (Commuting a pension)

Since the pension is splittable, is the cv amount splittable with hubby in this tax year ?
Can any business expenses be used against the cv amount?

I'm trying to envision what the tax implications,  strategies and opportunities are. What sort of "income" is the money treated as?

Any advice?

NoCantInCanada

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #435 on: January 09, 2016, 09:23:38 PM »
Thank you so much for the details! Do you have first hand experience with increased audits when people use them?

I'm further called to question when it might be worth taking an unpaid leave because of taxes.
I'm in a once in a lifetime situation in which I will hit the 51% tax bracket. (Commuting a pension)

Since the pension is splittable, is the cv amount splittable with hubby in this tax year ?
Can any business expenses be used against the cv amount?

I'm trying to envision what the tax implications,  strategies and opportunities are. What sort of "income" is the money treated as?

Any advice?

Just for some preliminary info, how much above the maximum tax-deferred transfer to a locked in plan are you looking at?

Also assuming no RRSP contribution room available?


K-ice

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #436 on: January 09, 2016, 09:39:34 PM »
Where can I get information about small business tax & structure?

I want to run a few scenarios.

A) Self employed make 60K claim as an individual.  (Anticipated situation for 2016, if we have a good year & change nothing)

Or

B) Form a business and pay myself salary of 30K and keep 30k in the business.

Or

C) Form a business and pay myself dividends of 30K and keep 30k in the business.

Or maybe some combo if B&C

I think I would prefer a sol proprietorship but if there are any tax advantages me & my SO may be partners. Currently SO "Volounters" with the "business" a bit. But SO makes salary more than 60K so income splitting doesn't make sense right now.

I know very little about this so if someone can point me to a few reliable sites I'm eager to learn.







 

SweetLife

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #437 on: January 10, 2016, 08:26:29 AM »
Hi there CPA CB!!! So glad to see you are still posting :)
Here is my question - I inherited 1/2 acre of land (my brother inherited the other half) - from my Mom's estate. There is no house on the land it is on a piece of property that my brother inherited. This is a severed "lot" ...

My brother would like to buy my half (in fact I want him to buy it too!) - when my Mom died in 2011 the land was priced at $60,000 - if I sell my half to him will I have to pay taxes on what he gives me? (Likely $20,000)?

THank you!!! Hope you had a wonderful New Years!

Hi Sweetlife -

What happens in an estate is that assets such as this are 'marked to market' on the date of death, and therefore your effective cost base would be your portion of the $60,000 (so, $30,000).

The issue is - you need to make sure you receive the fair market value today as payment for the land. Otherwise, you open yourself and your brother up to double taxation. Here's what I mean -

Let's say, the property is worth $100,000 today, so your portion is worth $50k. If he only pays you $20,000, it becomes an issue in terms of taxes. CRA will come in and change what you receive from the $20k to the $50k (so you'll pay taxes), but keep his cost base at the $20k, so he'll have to pay taxes on this amount as well.

Just get an assessment done to ensure you receive a value similar to fair market value and you'll be good!

Any taxes will be at 50% of your marginal rate on any funds received over $30,000. So if you get $50k - then you'll pay taxes on half the gain, or $10,000.

Hope this helps!

Intersting, lets say Sweetlife is in the 38% marginal tax bracket (10,000$ @38%) the taxes to be paid will be 3,800$?

$3,800 on a $20k capital gain - yes.

Ok one more question to this ... is it possible to put the proceeds from the sale directly into RRSP's to avoid capital gains (I have room there )? Is there any way to avoid capital gains? (I have to ask as I just found out (the family) is putting up our jointly owned property (200 acres) for sale this year (two of the 5 of us want their money out - so the way the will was written it gets sold). Which means capital gains on this property as well... ugh I have a headache just thinking of the tax implications.
Typos will happen, corrections appreciated, or just ignore ;)

jambongris

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #438 on: January 10, 2016, 09:53:45 AM »
CPA CB,

I have a question about child care expense deductions. The deduction limit is currently sitting at $8000 dollars per child. If I have two children under the age of 6 can I only claim $8k per child or are the deductions transferrable between children. For example, if we incur expenses of $10,000 for one child and $6000 for the other can we still claim the full $16,000? Form T778 seems to imply that you can based on the way the calculations are presented and I couldn't find anything in the instructions that clarified the situation one way or another.

Thanks.

NoCantInCanada

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #439 on: January 10, 2016, 10:01:22 AM »
Hi there CPA CB!!! So glad to see you are still posting :)
Here is my question - I inherited 1/2 acre of land (my brother inherited the other half) - from my Mom's estate. There is no house on the land it is on a piece of property that my brother inherited. This is a severed "lot" ...

My brother would like to buy my half (in fact I want him to buy it too!) - when my Mom died in 2011 the land was priced at $60,000 - if I sell my half to him will I have to pay taxes on what he gives me? (Likely $20,000)?

THank you!!! Hope you had a wonderful New Years!

Hi Sweetlife -

What happens in an estate is that assets such as this are 'marked to market' on the date of death, and therefore your effective cost base would be your portion of the $60,000 (so, $30,000).

The issue is - you need to make sure you receive the fair market value today as payment for the land. Otherwise, you open yourself and your brother up to double taxation. Here's what I mean -

Let's say, the property is worth $100,000 today, so your portion is worth $50k. If he only pays you $20,000, it becomes an issue in terms of taxes. CRA will come in and change what you receive from the $20k to the $50k (so you'll pay taxes), but keep his cost base at the $20k, so he'll have to pay taxes on this amount as well.

Just get an assessment done to ensure you receive a value similar to fair market value and you'll be good!

Any taxes will be at 50% of your marginal rate on any funds received over $30,000. So if you get $50k - then you'll pay taxes on half the gain, or $10,000.

Hope this helps!

Intersting, lets say Sweetlife is in the 38% marginal tax bracket (10,000$ @38%) the taxes to be paid will be 3,800$?

$3,800 on a $20k capital gain - yes.

Ok one more question to this ... is it possible to put the proceeds from the sale directly into RRSP's to avoid capital gains (I have room there )? Is there any way to avoid capital gains? (I have to ask as I just found out (the family) is putting up our jointly owned property (200 acres) for sale this year (two of the 5 of us want their money out - so the way the will was written it gets sold). Which means capital gains on this property as well... ugh I have a headache just thinking of the tax implications.

If the property is to be sold there is no way to "avoid" the tax on the capital gains.  As you mentioned though, you can put the proceeds into a RRSP contribution to "defer" the taxation on this (the taxation will occur when you withdraw the RRSP amounts in the future). 

To determine the availability of this you should first look to see what your contribution room available is from your 2014 Notice of Assessment (be sure to update this to the 2015 amount when you file your tax return this April - as the sale will occur in 2016 at the earliest).

Second you should then look to see what the total capital gains would be on the property.  To do this you would need to see what the 200 acres were valued at on your mothers death, and what the estimated property sale would be.  The excess of the sale price less the value on death is the capital gain.   If you own a 1/5 interest take this capital gain and multiply by 20% to get your portion of the capital gain.  Take your capital gain and multiply it by 50%.   If your contribution room available is greater than this amount, you can put the full amount of taxable capital gain into your RRSP and will not incur a tax bill in the year of disposition. 

Hope this helps a little - sorry I got a little "mathy".  Cheers.

NoCantInCanada

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #440 on: January 10, 2016, 10:54:34 AM »
Where can I get information about small business tax & structure?

I want to run a few scenarios.

A) Self employed make 60K claim as an individual.  (Anticipated situation for 2016, if we have a good year & change nothing)

Or

B) Form a business and pay myself salary of 30K and keep 30k in the business.

Or

C) Form a business and pay myself dividends of 30K and keep 30k in the business.

Or maybe some combo if B&C

I think I would prefer a sol proprietorship but if there are any tax advantages me & my SO may be partners. Currently SO "Volounters" with the "business" a bit. But SO makes salary more than 60K so income splitting doesn't make sense right now.

I know very little about this so if someone can point me to a few reliable sites I'm eager to learn.







 

If you google Tax Tips Small Business Canada you should be able to find a lot of information online regarding the incorporation of a business from a sole proprietorship.  That being said, at the $60,000 income level I think you are a little premature in looking at incorporation at this time.

One advantage of incorporation is the concept of limited liability, in that the corporation is a separate entity and as a result it is the corporation's assets and not your own that are at risk should things go south.  That being said, any lenders will likely request personal guarantees on any corporate financing so the advantage of this protection may be limited.  If you are in a litigious area of business, or do not have adequate insurance coverage on operations this may be something to consider.  This would be something to speak to your lawyer about however in terms of liability risks of the business.

The second advantage is that of tax deferral.  Small businesses receive significant tax incentives in the form of lower corporate tax rates to a certain income threshold ($500,000).  This is not a permanent tax savings as when the earnings are paid out to shareholders in the form of dividends they pay higher taxes than those paid from corporations who do not enjoy the lower tax rates.  There is a concept of integration in the Canadian tax system that holds that income earned through a sole proprietorship, vs. income earned through a corporation should be taxed at the same rate - at the end of the day the taxpayer should have the same amount of after-tax dollars in their jeans.  The theory doesn't work in every province, but for the sake of our discussion today let's just assume that perfect integration exists.

At the $60,000 income amount your effective tax rate is approximately 19.5% in Ontario (assuming just the basic personal tax credits).  The corporate tax rate on small business income in Ontario is 15.5%.  So at this income level if you leave all the income in the corporation and do not withdraw any of it you have a tax deferral of 4% or $2,400.  When you pay this income out to yourself in the form of a dividend this deferral is gone and you pay the $2,400 in tax.  The tax rates differ in all provinces, but the concept of integration holds the same in all provinces (more or less).   

This is an extreme case where you needed $0 in income, so at a maximum in Ontario you are looking at a 4% tax deferral, and in monetary terms $2,400.  When you are drawing income out to live on this deferral shrinks further.

This is my long-winded way of saying at the $60,000 income amount, in my opinion, you are best off sticking with a sole-proprietorship for tax purposes (you may want to visit the concept of legal liability with someone).  Assuming you have RRSP contribution room available, by making contributions to an RRSP of the cash that you do not require you will reduce your tax burden further. 

The cost to maintain a corporation, incorporation costs, corporate tax returns, annual filings, etc. do not warrant a corporation for tax purposes at this time. 

Let me know if this helps.  Cheers.

Joan-eh?

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #441 on: January 10, 2016, 03:51:31 PM »


Just for some preliminary info, how much above the maximum tax-deferred transfer to a locked in plan are you looking at?

Also assuming no RRSP contribution room available?

200k above locked in.
No RRSP room

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #442 on: January 10, 2016, 05:19:29 PM »
Where can I get information about small business tax & structure?

I want to run a few scenarios.

A) Self employed make 60K claim as an individual.  (Anticipated situation for 2016, if we have a good year & change nothing)

Or

B) Form a business and pay myself salary of 30K and keep 30k in the business.

Or

C) Form a business and pay myself dividends of 30K and keep 30k in the business.

Or maybe some combo if B&C

I think I would prefer a sol proprietorship but if there are any tax advantages me & my SO may be partners. Currently SO "Volounters" with the "business" a bit. But SO makes salary more than 60K so income splitting doesn't make sense right now.

I know very little about this so if someone can point me to a few reliable sites I'm eager to learn.







 

Hi K-Ice

Thanks for your question.

No Can't in Canada has responded with some of the pros & cons -

To add however, I think it is a more complex and nuanced issue, and is very much circumstantial.

Firstly, it depends on your outlook for the business. If you foresee yourself continuing to churn along at the $60k mark, or if you're investing in growing your business. In this sense, it can make sense to get your ducks in a row early. What type of business is it?

Secondly, family - income splitting opportunities are available, not just with your wife, but also with children in the future. It's certainly worth consideration.

Tax deferral is certainly am important element. It's true, at $60k the quantum of savings from deferral isn't substantial. That being said, the ability to pick and choose income, slot away funds in the corporation and invest on a pre-tax basis, and eventually split income is a real selling point.

Taxtips is a decent resource. I also like to read Entreprenuer.com - it doesn't offer "Canadian" material per say, but often it does address small business issues such as this. In a broad sense, the issues are just as applicable in the US as Canada.

Hope this helps!

CPA CB





CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #443 on: January 10, 2016, 05:25:54 PM »
Hi there CPA CB!!! So glad to see you are still posting :)
Here is my question - I inherited 1/2 acre of land (my brother inherited the other half) - from my Mom's estate. There is no house on the land it is on a piece of property that my brother inherited. This is a severed "lot" ...

My brother would like to buy my half (in fact I want him to buy it too!) - when my Mom died in 2011 the land was priced at $60,000 - if I sell my half to him will I have to pay taxes on what he gives me? (Likely $20,000)?

THank you!!! Hope you had a wonderful New Years!

Hi Sweetlife -

What happens in an estate is that assets such as this are 'marked to market' on the date of death, and therefore your effective cost base would be your portion of the $60,000 (so, $30,000).

The issue is - you need to make sure you receive the fair market value today as payment for the land. Otherwise, you open yourself and your brother up to double taxation. Here's what I mean -

Let's say, the property is worth $100,000 today, so your portion is worth $50k. If he only pays you $20,000, it becomes an issue in terms of taxes. CRA will come in and change what you receive from the $20k to the $50k (so you'll pay taxes), but keep his cost base at the $20k, so he'll have to pay taxes on this amount as well.

Just get an assessment done to ensure you receive a value similar to fair market value and you'll be good!

Any taxes will be at 50% of your marginal rate on any funds received over $30,000. So if you get $50k - then you'll pay taxes on half the gain, or $10,000.

Hope this helps!

Intersting, lets say Sweetlife is in the 38% marginal tax bracket (10,000$ @38%) the taxes to be paid will be 3,800$?

$3,800 on a $20k capital gain - yes.

Ok one more question to this ... is it possible to put the proceeds from the sale directly into RRSP's to avoid capital gains (I have room there )? Is there any way to avoid capital gains? (I have to ask as I just found out (the family) is putting up our jointly owned property (200 acres) for sale this year (two of the 5 of us want their money out - so the way the will was written it gets sold). Which means capital gains on this property as well... ugh I have a headache just thinking of the tax implications.

Hi Sweetlife -

Is this a farm, by chance?

Otherwise there isn't really an opportunity to defer the capital gain.

RRSP's are one way to go. I would recommend paying a portion of this into an RRSP potentially, and focus on maxing out the TFSA.

As stated with the other property, it depends on the valuation on the date of demise for your mother on the property. If this occurred recently, there's a good chance there won't be a significant tax impact on you.

It seems like you've got a lot going on this year - I would definitely recommend getting in touch with a Chartered Accountant prior to the sale to make sure it's planned appropriately (in advance) rather than just dealing with the consequences as they arise.

Hope this helps!

CPA CB

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #444 on: January 10, 2016, 05:34:58 PM »
CPA CB,

I have a question about child care expense deductions. The deduction limit is currently sitting at $8000 dollars per child. If I have two children under the age of 6 can I only claim $8k per child or are the deductions transferrable between children. For example, if we incur expenses of $10,000 for one child and $6000 for the other can we still claim the full $16,000? Form T778 seems to imply that you can based on the way the calculations are presented and I couldn't find anything in the instructions that clarified the situation one way or another.

Thanks.

Hi Jam,

It's $8,000 per child, but not 'globally' $16,000.

That being said, many expenses can realistically be split between children in a way that would maximize the utilizable value for you. I wouldn't call this 'by the book' (at least not in CRA's eyes) but I think it's a reasonable interpretation of the Income Tax Act (if your assumptions in split are reasonable).

Cheers

CPA CB


sorrycanook

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #445 on: January 18, 2016, 12:59:20 PM »
Good afternoon CPA CB!

This is a fantastic thread, and it's terrific to see someone with your expertise volunteer time and advice to others!

Unfortunately, I think I may have (foolishly) put myself in a precarious tax position, when preparing to use the Home Buyers Plan.

A) In November 2015 I submitted over $25,000 into my RRSP, with the intention of using it for the HBP after the 90 day period.
This home purchase (and use of the funds) will likely occur in 2016.

B) I am concerned about the over contribution penalties, chance for 2015 tax refund, and future tax effects.
My 2015 RRSP deduction limit is only $9,527. I carry forward Tuition/ textbook credits as well.

C) I pay tax on each work paycheque.

D) I only worked about 7/12 months in 2015 as I graduated mid-year.

Do you have any suggestions about how I should approach this tax year, and the Home Buyers Plan? Am I misunderstanding this as an issue?

I will provide more detail, if it is needed as well. :)

Thank you for all of your contributions to the forum!

SC
« Last Edit: January 18, 2016, 01:46:58 PM by sorrycanook »

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #446 on: January 18, 2016, 02:49:01 PM »
Good afternoon CPA CB!

This is a fantastic thread, and it's terrific to see someone with your expertise volunteer time and advice to others!

Unfortunately, I think I may have (foolishly) put myself in a precarious tax position, when preparing to use the Home Buyers Plan.

A) In November 2015 I submitted over $25,000 into my RRSP, with the intention of using it for the HBP after the 90 day period.
This home purchase (and use of the funds) will likely occur in 2016.

B) I am concerned about the over contribution penalties, chance for 2015 tax refund, and future tax effects.
My 2015 RRSP deduction limit is only $9,527. I carry forward Tuition/ textbook credits as well.

C) I pay tax on each work paycheque.

D) I only worked about 7/12 months in 2015 as I graduated mid-year.

Do you have any suggestions about how I should approach this tax year, and the Home Buyers Plan? Am I misunderstanding this as an issue?

I will provide more detail, if it is needed as well. :)

Thank you for all of your contributions to the forum!

SC

Hi SC

It's my pleasure helping out and giving back. I'm glad you're finding this useful.

Regarding the RRSP - eek!

RRSP over-contributions are taxed at 1% per month of the overcontributed amount - so 1% of approximately $15k+ per month overdue from the sounds of it.

Advice is to withdraw this immediately. This will help to minimize the tax impact here as 1% gets expensive quite quickly. You'll pay a whopper of withholding taxes in the meantime (and it will be treated as income in 2016) but you can apply for a deduction using the T746 form.

It sounds like you'll be able to contribute an addition $18k this year based on your contribution level from last year. Once you withdraw, you can re-contribute to offset some of the tax impact here as well. Just be prudent and ensure you're on-side in order to avoid this issue in the future, as it is a bit of a headache to correct (as you can see).

Good luck!

CPA CB



Mr. Rich Moose

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #447 on: January 19, 2016, 09:09:39 AM »
Good afternoon CPA CB!

This is a fantastic thread, and it's terrific to see someone with your expertise volunteer time and advice to others!

Unfortunately, I think I may have (foolishly) put myself in a precarious tax position, when preparing to use the Home Buyers Plan.

A) In November 2015 I submitted over $25,000 into my RRSP, with the intention of using it for the HBP after the 90 day period.
This home purchase (and use of the funds) will likely occur in 2016.

B) I am concerned about the over contribution penalties, chance for 2015 tax refund, and future tax effects.
My 2015 RRSP deduction limit is only $9,527. I carry forward Tuition/ textbook credits as well.

C) I pay tax on each work paycheque.

D) I only worked about 7/12 months in 2015 as I graduated mid-year.

Do you have any suggestions about how I should approach this tax year, and the Home Buyers Plan? Am I misunderstanding this as an issue?

I will provide more detail, if it is needed as well. :)

Thank you for all of your contributions to the forum!

SC

Don't forget you are allowed a $2,000 one-time over-contribution that is penalty free (but not tax-deductible). Based on your income do you think you will have an RRSP limit for 2016 that exceeds $13473 ($25000 - $9527 - $2000)? Just do some quick math to figure out 18% of earned income in 2015.

CPACB can correct me here, but my understanding is if your 2016 contribution limit exceeds $13473, you could just leave it in the account at this point. You would only pay tax on the over contribution from November - December 31.
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sorrycanook

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #448 on: January 19, 2016, 10:16:39 AM »
Hi Tuxedo,

First off, thank you very much for taking the time to respond to my dilemma!

My 2016 Contribution room would likely not exceed $13,4673, as I only worked for 7 Months in 2015, after graduating. The $25,000 was actually given to me by my family, to put towards the new house. It was then recommended to me, that I put it in the HBP (which is regrettable). I took the recommendation at face value unfortunately! Lesson learned.

I had Taxable Earnings of $26,263 in 2015, and am set to earn $50,000 before tax in 2016.

Thank you both for your advice,

SC
« Last Edit: January 19, 2016, 10:59:35 AM by sorrycanook »

SweetLife

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #449 on: January 21, 2016, 01:49:27 PM »
Hi there CPA CB!!! So glad to see you are still posting :)
Here is my question - I inherited 1/2 acre of land (my brother inherited the other half) - from my Mom's estate. There is no house on the land it is on a piece of property that my brother inherited. This is a severed "lot" ...

My brother would like to buy my half (in fact I want him to buy it too!) - when my Mom died in 2011 the land was priced at $60,000 - if I sell my half to him will I have to pay taxes on what he gives me? (Likely $20,000)?

THank you!!! Hope you had a wonderful New Years!

Hi Sweetlife -

What happens in an estate is that assets such as this are 'marked to market' on the date of death, and therefore your effective cost base would be your portion of the $60,000 (so, $30,000).

The issue is - you need to make sure you receive the fair market value today as payment for the land. Otherwise, you open yourself and your brother up to double taxation. Here's what I mean -

Let's say, the property is worth $100,000 today, so your portion is worth $50k. If he only pays you $20,000, it becomes an issue in terms of taxes. CRA will come in and change what you receive from the $20k to the $50k (so you'll pay taxes), but keep his cost base at the $20k, so he'll have to pay taxes on this amount as well.

Just get an assessment done to ensure you receive a value similar to fair market value and you'll be good!

Any taxes will be at 50% of your marginal rate on any funds received over $30,000. So if you get $50k - then you'll pay taxes on half the gain, or $10,000.

Hope this helps!

Intersting, lets say Sweetlife is in the 38% marginal tax bracket (10,000$ @38%) the taxes to be paid will be 3,800$?

$3,800 on a $20k capital gain - yes.

Ok one more question to this ... is it possible to put the proceeds from the sale directly into RRSP's to avoid capital gains (I have room there )? Is there any way to avoid capital gains? (I have to ask as I just found out (the family) is putting up our jointly owned property (200 acres) for sale this year (two of the 5 of us want their money out - so the way the will was written it gets sold). Which means capital gains on this property as well... ugh I have a headache just thinking of the tax implications.

Hi Sweetlife -

Is this a farm, by chance?

Otherwise there isn't really an opportunity to defer the capital gain.

RRSP's are one way to go. I would recommend paying a portion of this into an RRSP potentially, and focus on maxing out the TFSA.

As stated with the other property, it depends on the valuation on the date of demise for your mother on the property. If this occurred recently, there's a good chance there won't be a significant tax impact on you.

It seems like you've got a lot going on this year - I would definitely recommend getting in touch with a Chartered Accountant prior to the sale to make sure it's planned appropriately (in advance) rather than just dealing with the consequences as they arise.

Hope this helps!

CPA CB


Yes CPA CB there is definitely ALOT going on lol...
The 1/2 acre I own with my brother is on a farm (an acre carved out and severed years ago but I think it is still considered farm land)
The 1/5 of the 200 acres is now considered "rental property" (it used to be farm but upon my oldest brother being in charge of it, it was turned into "rental property" - we rent out the available "farmland" to a farmer for $10,000 per year.

The 1 acre was valued at $60,000 at the time of Mom's death. The 200 acre farm was valued at $1.3 million

I really wish this all would have been sold prior to Mom's death and the money spent on her ... you cannot (or maybe you can) imagine the infighting going on over this crap...


Thanks again for the help ... I am in WAYYYYY over my head on this one.
Typos will happen, corrections appreciated, or just ignore ;)