Author Topic: Can"EH"dian Tax - You have questions, I have answers  (Read 207310 times)

RetiredAt63

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #750 on: March 11, 2019, 02:34:35 PM »

Think of these funds like a bubble.  You only track the money that goes in and of the bubble.  Anything that happens inside, including transfers from one RRSP to another RRSP (in the same holder's name) does not impact your return.

Just make sure your banks/financial institutions do the transfers.  If you do it manually it came out of the bubble.

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #751 on: March 11, 2019, 06:29:22 PM »
Hi! Thanks for creating this thread, you are so generous to give your time and experience!

My question: should I hire an accountant? I am setting up a small business / sole proprietorship. Selling jewelry. At-home / mobile business. Some online.
Should I hire someone today? Yesterday? Soon? End of fiscal year? Thanks!

I am also choosing between QuickBooks, Wave, and FreshBooks. Any advice you have on my set-up would be greatly appreciated!

I am a big fan of QuickBooks desktop, but if you are just getting started you could probably just use a spreadsheet. You just need a way to track your income and expenses. You need to register for GST once you hit $30,000 in gross income.

One thing that will make your life a lot easier is to set up a separate bank account and credit card for your business. Since you are a proprietorship they can be in your name (not necessarily the business name). Then just transfer money out of your business account to your personal account as needed.

ToTheMoon

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #752 on: March 11, 2019, 08:57:51 PM »
Hi! Thanks for creating this thread, you are so generous to give your time and experience!

My question: should I hire an accountant? I am setting up a small business / sole proprietorship. Selling jewelry. At-home / mobile business. Some online.
Should I hire someone today? Yesterday? Soon? End of fiscal year? Thanks!

I am also choosing between QuickBooks, Wave, and FreshBooks. Any advice you have on my set-up would be greatly appreciated!

I am a big fan of QuickBooks desktop, but if you are just getting started you could probably just use a spreadsheet. You just need a way to track your income and expenses. You need to register for GST once you hit $30,000 in gross income.

One thing that will make your life a lot easier is to set up a separate bank account and credit card for your business. Since you are a proprietorship they can be in your name (not necessarily the business name). Then just transfer money out of your business account to your personal account as needed.

If you do nothing else, please at a minimum do this.  At this point, you do not likely need a "business" account or "business" card (and the fees that come along with them) so just open another chequing account and a separate credit card in your name that will be used for business only. 

Use the T2125 https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2125/t2125-17e.pdf (parts 3D and 4 will be the portions to pay attention to.)  Build a simple spreadsheet with these categories that will allow you to easily categorize your expenses for your annual tax filing.

You may want to look to an accounting/bookkeeping software if things pick up - definitely not necessary, but can be a time saver for some.  I used Sage for years, have been using Quickbooks desktop for the last couple of years, and am thinking I will get with the times and switch myself over to QB Online within the next year (many of my clients are heading this way, so I had better stay current!)

PS- If it starts to look likely that you will cross the $30K in sales threshold, please apply for your GST account BEFORE that happens!  The invoice that takes you across this threshold should have GST charged on it that you will have to remit to the Gov't (technically.) :)

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #753 on: March 12, 2019, 08:53:57 AM »
Hi! Thanks for creating this thread, you are so generous to give your time and experience!

My question: should I hire an accountant? I am setting up a small business / sole proprietorship. Selling jewelry. At-home / mobile business. Some online.
Should I hire someone today? Yesterday? Soon? End of fiscal year? Thanks!

I am also choosing between QuickBooks, Wave, and FreshBooks. Any advice you have on my set-up would be greatly appreciated!

I am a big fan of QuickBooks desktop, but if you are just getting started you could probably just use a spreadsheet. You just need a way to track your income and expenses. You need to register for GST once you hit $30,000 in gross income.

One thing that will make your life a lot easier is to set up a separate bank account and credit card for your business. Since you are a proprietorship they can be in your name (not necessarily the business name). Then just transfer money out of your business account to your personal account as needed.

Yay- I have already made a business bank account. With freshbooks I can make invoices for free, and with a spreadsheet I can track the in and out of money. Is there anything else Iím missing by going the free route?


lifejoy

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #754 on: March 12, 2019, 08:57:06 AM »
Hi! Thanks for creating this thread, you are so generous to give your time and experience!

My question: should I hire an accountant? I am setting up a small business / sole proprietorship. Selling jewelry. At-home / mobile business. Some online.
Should I hire someone today? Yesterday? Soon? End of fiscal year? Thanks!

I am also choosing between QuickBooks, Wave, and FreshBooks. Any advice you have on my set-up would be greatly appreciated!

I am a big fan of QuickBooks desktop, but if you are just getting started you could probably just use a spreadsheet. You just need a way to track your income and expenses. You need to register for GST once you hit $30,000 in gross income.

One thing that will make your life a lot easier is to set up a separate bank account and credit card for your business. Since you are a proprietorship they can be in your name (not necessarily the business name). Then just transfer money out of your business account to your personal account as needed.

If you do nothing else, please at a minimum do this.  At this point, you do not likely need a "business" account or "business" card (and the fees that come along with them) so just open another chequing account and a separate credit card in your name that will be used for business only. 

Use the T2125 https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2125/t2125-17e.pdf (parts 3D and 4 will be the portions to pay attention to.)  Build a simple spreadsheet with these categories that will allow you to easily categorize your expenses for your annual tax filing.

You may want to look to an accounting/bookkeeping software if things pick up - definitely not necessary, but can be a time saver for some.  I used Sage for years, have been using Quickbooks desktop for the last couple of years, and am thinking I will get with the times and switch myself over to QB Online within the next year (many of my clients are heading this way, so I had better stay current!)

PS- If it starts to look likely that you will cross the $30K in sales threshold, please apply for your GST account BEFORE that happens!  The invoice that takes you across this threshold should have GST charged on it that you will have to remit to the Gov't (technically.) :)

Quickbooks is popular. Iím afraid Iím being penny wise and pound foolish by not using QB. But I like the idea of keeping my overhead expenses VERY low.

Any downside to me trying the free route and going for the software if things get crazy? Should I hire an accountant to make sure my spreadsheet is good? Agh. Itís so much unknown. Definitely not my area of expertise.

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #755 on: March 12, 2019, 02:03:46 PM »
Here is a question for the CPA's / accountants out there.  I am baffled by it. @Cpa Cat  @ToTheMoon help?

I have a micro-business in FIRE, which includes consulting engineering services, among other services (business advisory and financial planning).
Recently, my prior employer asked me on a call up basis to take on a part time project.   It amounts to 150 hours of work over 3-4 months. 

In order to pay me as a sub-consultant (like a vendor) I need a huge amount of commercial and professional liability and a sub-consultant agreement.  Which is weird because I work from my home office (so what commercial risk do I incur?) and already have $250k of professional liability, more than 10x my fees - but whatever.  Their rules.   I have a call in to get a quote for this now.

Alternatively, I can be set up as an hourly contractor, (This set up is the most appropriate for this situation), which then falls under their professional and commercial liability but I still cover my own taxes, employer costs, WCB etc. with my own business. 

The question:
In order to set me up as an hourly contractor, (not a vendor or sub-consultant) they require that I be "incorporated, because they say that there are less tax implications for them.  WHAT?!  How does my incorporation vs. sole proprietor status affect my client's tax situation?



I can only see the impact on the "employee versus contractor" test, for employment standards, but even that does not revolve around incorporation directly but on a different set of criteria for my province.

ToTheMoon

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #756 on: March 13, 2019, 11:20:07 AM »
Here is a question for the CPA's / accountants out there.  I am baffled by it. @Cpa Cat  @ToTheMoon help?

I have a micro-business in FIRE, which includes consulting engineering services, among other services (business advisory and financial planning).
Recently, my prior employer asked me on a call up basis to take on a part time project.   It amounts to 150 hours of work over 3-4 months. 

In order to pay me as a sub-consultant (like a vendor) I need a huge amount of commercial and professional liability and a sub-consultant agreement.  Which is weird because I work from my home office (so what commercial risk do I incur?) and already have $250k of professional liability, more than 10x my fees - but whatever.  Their rules.   I have a call in to get a quote for this now.

Alternatively, I can be set up as an hourly contractor, (This set up is the most appropriate for this situation), which then falls under their professional and commercial liability but I still cover my own taxes, employer costs, WCB etc. with my own business. 

The question:
In order to set me up as an hourly contractor, (not a vendor or sub-consultant) they require that I be "incorporated, because they say that there are less tax implications for them.  WHAT?!  How does my incorporation vs. sole proprietor status affect my client's tax situation?



I can only see the impact on the "employee versus contractor" test, for employment standards, but even that does not revolve around incorporation directly but on a different set of criteria for my province.

This sounds very strange to me - can you request clarification from them before you spend too much time going down the rabbit hole?

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #757 on: March 14, 2019, 12:18:06 AM »
Here is a question for the CPA's / accountants out there.  I am baffled by it. @Cpa Cat  @ToTheMoon help?

I have a micro-business in FIRE, which includes consulting engineering services, among other services (business advisory and financial planning).
Recently, my prior employer asked me on a call up basis to take on a part time project.   It amounts to 150 hours of work over 3-4 months. 

In order to pay me as a sub-consultant (like a vendor) I need a huge amount of commercial and professional liability and a sub-consultant agreement.  Which is weird because I work from my home office (so what commercial risk do I incur?) and already have $250k of professional liability, more than 10x my fees - but whatever.  Their rules.   I have a call in to get a quote for this now.

Alternatively, I can be set up as an hourly contractor, (This set up is the most appropriate for this situation), which then falls under their professional and commercial liability but I still cover my own taxes, employer costs, WCB etc. with my own business. 

The question:
In order to set me up as an hourly contractor, (not a vendor or sub-consultant) they require that I be "incorporated, because they say that there are less tax implications for them.  WHAT?!  How does my incorporation vs. sole proprietor status affect my client's tax situation?



I can only see the impact on the "employee versus contractor" test, for employment standards, but even that does not revolve around incorporation directly but on a different set of criteria for my province.

This sounds very strange to me - can you request clarification from them before you spend too much time going down the rabbit hole?
Hah.  I did. That was the answer.   
So I posted it on here and asked another person, from a different area of the company why. 

There was one good explanation -- when audited by the government for contractor vs employee set up, if the government finds one person improperly classified, they then do a COMPLETE audit of all the hourly contractors, which costs a lot of time and headache.  The incorporated status guarantees that the person is a contractor, quickly.   So not really about automatic taxes, more about the cost of audits and penalties that arise if found to be at fault.      I still don't like the answer because it is a short cut that does not apply to my situation.

Maya

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #758 on: March 16, 2019, 08:27:48 AM »
Is there a link to a good tax tables for Alberta?

I've been maxing out my RRSP for the last couple of years and for 2019 will have $8000 contribution room. I have been debating if I should slow down on my contributions there and focus on my TFSA while we have daycare fees that are bringing down my net income.

Do daycare fees bring down your net income dollar for dollar like RRSPs?

I'm trying to figure out if delaying contributions is worth it to have more space when we have less to pay in daycare.

Trying to plan out the sweet spot for RRSP/TFSA contributions and planning for down the road as daycare fees decrease and it could be useful to have more RRSP space.

Off the Wheel

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #759 on: March 16, 2019, 08:38:25 AM »
Three questions -

1) I'm on track to max out my personal RRSP and TFSA limits this year, for the first time. (YAY!) Is it the best financial decision to then put my savings into my husband's RRSP? It wouldn't be set up as a spousal RRSP, I would just transfer him the money and he'd deposit it. We're in similar tax brackets but he has more room than I do.  I'm just not sure if this is legally allowed or the right thing to do with my money. (And this is purely a financial/tax question, I trust him, we have similar financial goals, I'm not concerned about funding his accounts for the naysayers. ;))

2) I'm also on track to have my first child at the beginning of September. Outside of the $2500 going into an RESP, is there anything else I should open/invest in to maximize the tax benefits there?

3) I will be going on maternity leave for somewhere in the 12-18 month range, but I work for a small company and will remain very involved in the strategic planning of the business. Rather than get paid as a consultant, would I be able to ask for my stock options to be granted at whatever $ amount we agree on, for hours worked? Would that be taxed, or only taxed with a liquidity event like going public, like the rest of my shares?

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #760 on: March 20, 2019, 12:02:59 AM »
Is there a link to a good tax tables for Alberta?

I've been maxing out my RRSP for the last couple of years and for 2019 will have $8000 contribution room. I have been debating if I should slow down on my contributions there and focus on my TFSA while we have daycare fees that are bringing down my net income.

Do daycare fees bring down your net income dollar for dollar like RRSPs?

I'm trying to figure out if delaying contributions is worth it to have more space when we have less to pay in daycare.

Trying to plan out the sweet spot for RRSP/TFSA contributions and planning for down the road as daycare fees decrease and it could be useful to have more RRSP space.

EY tax calculator...

RRSPs ... If you get Child benefits, your RRSP contributions lower your income and your child benefit goes up.  It is pretty large with the liberals, so generally worth claiming RRSPs when you have kids at home and qualify for CB payments.

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #761 on: March 20, 2019, 12:18:16 AM »
Three questions -

1) I'm on track to max out my personal RRSP and TFSA limits this year, for the first time. (YAY!) Is it the best financial decision to then put my savings into my husband's RRSP? It wouldn't be set up as a spousal RRSP, I would just transfer him the money and he'd deposit it. We're in similar tax brackets but he has more room than I do.  I'm just not sure if this is legally allowed or the right thing to do with my money. (And this is purely a financial/tax question, I trust him, we have similar financial goals, I'm not concerned about funding his accounts for the naysayers. ;))

2) I'm also on track to have my first child at the beginning of September. Outside of the $2500 going into an RESP, is there anything else I should open/invest in to maximize the tax benefits there?

3) I will be going on maternity leave for somewhere in the 12-18 month range, but I work for a small company and will remain very involved in the strategic planning of the business. Rather than get paid as a consultant, would I be able to ask for my stock options to be granted at whatever $ amount we agree on, for hours worked? Would that be taxed, or only taxed with a liquidity event like going public, like the rest of my shares?
With equal incomes, who is to say that you don't pay all your annual expenses and your husband puts his money into RRSP's?  It would be different if he wasn't working but had room from a previous job.
 For child opportunities... It is better to max out your retirement funds before the RESP until the kid is 11-14.  You can catch up then with the RESPs..  the money will grow faster in your retirement fund, it is easier to reduce education spending than retirement costs, you can cash flow some education, and the grant has better financial returns when you receive the money closer to when you pull it.  Try to max out RRSP to get the largest child benefit payment possible.

For number three, the way your worded it, it sounds like you are trying to deliberately  structure how you receive income so that you can continue to receive more EI than really entitled to.  Get legal advice because this could read like fraud.     An alternative, you can earn a small weekly amount and still collect full or partial EI.  Find out the limits and do that, or just get part time payment from your work, instead of EI.  It may be more money, anyway, and maybe benefits, too.

Blissful Biker

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #762 on: March 22, 2019, 10:25:49 AM »
Great thread.  Thank you.  Posting to follow and learn!

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #763 on: March 23, 2019, 11:07:47 AM »
@lifejoy I work freelance as a writer and photographer for the last three years since being FI, Taxes are extremely simple and I run it as a sole proprietor, very easy to do. I have been using the QuickBooks self-employed app from day one and is mind blowing how simple it is.

I don't have to hang onto stacks of receipts and paperwork for expenses as it has a photo upload function. It also tracks mileage for year end tax credit on your expenses. It can generate invoices as well but I prefer to make my own invoices via pdf from excel and just make a manual entry into the app.

The app also generates and exports all your year end tax reports, full profit/loss statement, mileage log, transaction log and tax summary into excel files.

I HIGHLY recommend giving this a look, cost me like $5 a month or something like that. All cloud based
https://quickbooks.intuit.com/ca/self-employed/

urover

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #764 on: April 03, 2019, 01:36:24 PM »
I'm paying (paid) 22% of my income in taxes for 2018. I earn low 100s. Is that considered high or average?

I'm doing my taxes myself. Wondering if I'm missing something.

FYI, I'm maxing out my RRSPs and diligently contributing to TFSA.
« Last Edit: April 03, 2019, 01:38:39 PM by urover »

daverobev

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #765 on: April 03, 2019, 03:49:06 PM »
I'm paying (paid) 22% of my income in taxes for 2018. I earn low 100s. Is that considered high or average?

I'm doing my taxes myself. Wondering if I'm missing something.

FYI, I'm maxing out my RRSPs and diligently contributing to TFSA.

It is what it is? How much are you putting into your RRSP - because that comes right off the top.

$110k income say, $20k RRSP, if you have nothing else going on then yeah,

https://www.taxtips.ca/calculators/canadian-tax/canadian-tax-calculator.htm

tells me Average tax rate based on adjusted taxable income (actual income) = 22.5%

RichMoose

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #766 on: April 03, 2019, 03:56:59 PM »
I'm paying (paid) 22% of my income in taxes for 2018. I earn low 100s. Is that considered high or average?

I'm doing my taxes myself. Wondering if I'm missing something.

FYI, I'm maxing out my RRSPs and diligently contributing to TFSA.
That's about right for a single, no children person. If you are salaried or an hourly employee there are not a lot of ways to reduce tax. RRSP contributions, tuition, charitable donations, medical expenses, union/association dues, interest expenses (on investment loans), and the odd provincial credit for certain niche items is as good as it gets. Check to make sure you've applied for the new carbon rebate if you're in Ontario.

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #767 on: April 03, 2019, 11:13:41 PM »
I'm paying (paid) 22% of my income in taxes for 2018. I earn low 100s. Is that considered high or average?

I'm doing my taxes myself. Wondering if I'm missing something.

FYI, I'm maxing out my RRSPs and diligently contributing to TFSA.
That's about right for a single, no children person. If you are salaried or an hourly employee there are not a lot of ways to reduce tax. RRSP contributions, tuition, charitable donations, medical expenses, union/association dues, interest expenses (on investment loans), and the odd provincial credit for certain niche items is as good as it gets. Check to make sure you've applied for the new carbon rebate if you're in Ontario.
Medical expenses... Hah!  Sounds good...not worth much... I had over $4k in medical expenses for the 12 month period, even on low income, and when that 3% of your income is taken out... only get back $450 or 10%.  It took me almost two hours to compile all the expenses and figure out our most expensive 12 month period.  We've only claimed medical 3 times in 25 years.   To get back more, you need to have a very serious event happen in your life, so I guess the good news is that we only spent $4k and I am counting our blessings...?

The other one that doesn't give much back, tax wise, is deducting food / meals on your small business expenses.   I only get a deduction worth 8-10% of the cost of the meal.   Clients think that when you expense something it is free, and it just isn't so.   Worth it if business comes out of it, but still pricey. 

The other ones listed are pretty good for tax credits or reducing income tax owing.

ETA -- I thought of another one that did not pay much for the effort to track -- business use of home office -- the one that you would get form T2200 from your employer, business use of home for employees.  When I calculated it out one year, it was only worth $120 to me.   $120 is still something, but a lot of work to get an employer to fill out the form and calc your costs for only $120.  It think it would be a better value to people that rent instead of owning their property.
« Last Edit: April 03, 2019, 11:39:44 PM by Goldielocks »

lifejoy

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #768 on: May 19, 2019, 03:06:28 PM »
@lifejoy I work freelance as a writer and photographer for the last three years since being FI, Taxes are extremely simple and I run it as a sole proprietor, very easy to do. I have been using the QuickBooks self-employed app from day one and is mind blowing how simple it is.

I don't have to hang onto stacks of receipts and paperwork for expenses as it has a photo upload function. It also tracks mileage for year end tax credit on your expenses. It can generate invoices as well but I prefer to make my own invoices via pdf from excel and just make a manual entry into the app.

The app also generates and exports all your year end tax reports, full profit/loss statement, mileage log, transaction log and tax summary into excel files.

I HIGHLY recommend giving this a look, cost me like $5 a month or something like that. All cloud based
https://quickbooks.intuit.com/ca/self-employed/

Well that sounds amazing. I am going to look into it.

scottish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #769 on: May 20, 2019, 08:02:05 AM »
I have a question related to estate taxes.  The T3 Trust Guide for 2018 says:

<snip>
Graduated rate estate elections (losses)
For 2016 and subsequent tax years, if you are a legal representative administering the graduated rate estate of a deceased person, you may:

elect under 164(6) to treat certain capital losses and terminal losses, arising in the first tax year of the deceased personís graduated rate estate, as losses of the deceased person for that personís final tax year
</snip>

What happens with capital losses in the 2nd year?   For example, suppose we have 100K invested in stocks in the second year of the estate, it turns out to be a bad year for the stock market, and the assets are only worth 80K at the end of the second year.   There's a 20K capital loss.   As an individual, we could carry the loss forward.   

If we wind up the estate at the end of the second year, what happens to the capital loss?

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #770 on: May 21, 2019, 02:08:36 AM »
I don't have my books near me, but my fuzzy memory is suggesting that you then refile up to 3 years backwards...? If you can get a tax advantage doing so, anyway.   After the final year tax return adjustments, if the deceased is no longer filing a tax return (!) then you lose out on any benfit to a capital loss.   

I am struggling to get how you have more than one year of "final tax return of a deceased person", ... because after the final tax return doesn't the residual estate get held in trust / treated like a trust if not distributed / dispersed?  (It is no longer a personal tax return but a trust tax filing?)

I am sure someone much more competent than I can answer...   These are just some random thoughts.

scottish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #771 on: May 22, 2019, 05:01:16 PM »
I don't have my books near me, but my fuzzy memory is suggesting that you then refile up to 3 years backwards...? If you can get a tax advantage doing so, anyway.   After the final year tax return adjustments, if the deceased is no longer filing a tax return (!) then you lose out on any benfit to a capital loss.   

I am struggling to get how you have more than one year of "final tax return of a deceased person", ... because after the final tax return doesn't the residual estate get held in trust / treated like a trust if not distributed / dispersed?  (It is no longer a personal tax return but a trust tax filing?)

I am sure someone much more competent than I can answer...   These are just some random thoughts.

My accountant answered.   If you transfer the assets in kind the beneficiary assumes the original cost base.   If you sell the assets then the capital loss is not available.

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #772 on: May 23, 2019, 02:04:59 PM »
@scottish
I am not sure what you mean by this "If you transfer the assets in kind the beneficiary assumes the original cost base. "   Is this related to the graduated estate, or apply to anyone at any time (not just an estate dispersement).

Missy B

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #773 on: May 23, 2019, 11:05:01 PM »
Here is a question for the CPA's / accountants out there.  I am baffled by it. @Cpa Cat  @ToTheMoon help?

I have a micro-business in FIRE, which includes consulting engineering services, among other services (business advisory and financial planning).
Recently, my prior employer asked me on a call up basis to take on a part time project.   It amounts to 150 hours of work over 3-4 months. 

In order to pay me as a sub-consultant (like a vendor) I need a huge amount of commercial and professional liability and a sub-consultant agreement.  Which is weird because I work from my home office (so what commercial risk do I incur?) and already have $250k of professional liability, more than 10x my fees - but whatever.  Their rules.   I have a call in to get a quote for this now.

Alternatively, I can be set up as an hourly contractor, (This set up is the most appropriate for this situation), which then falls under their professional and commercial liability but I still cover my own taxes, employer costs, WCB etc. with my own business. 

The question:
In order to set me up as an hourly contractor, (not a vendor or sub-consultant) they require that I be "incorporated, because they say that there are less tax implications for them.  WHAT?!  How does my incorporation vs. sole proprietor status affect my client's tax situation?



I can only see the impact on the "employee versus contractor" test, for employment standards, but even that does not revolve around incorporation directly but on a different set of criteria for my province.

This sounds very strange to me - can you request clarification from them before you spend too much time going down the rabbit hole?
Hah.  I did. That was the answer.   
So I posted it on here and asked another person, from a different area of the company why. 

There was one good explanation -- when audited by the government for contractor vs employee set up, if the government finds one person improperly classified, they then do a COMPLETE audit of all the hourly contractors, which costs a lot of time and headache.  The incorporated status guarantees that the person is a contractor, quickly.   So not really about automatic taxes, more about the cost of audits and penalties that arise if found to be at fault.      I still don't like the answer because it is a short cut that does not apply to my situation.
While that makes sense, it also makes me nervous. As an employee who is incorporating to bill your employer, especially if they are paying you most/all of your corporate income, the govt could decide that you are 'personal services' which would mean a massive tax hit. This is in addition to the costs of incorporating and corporate taxes, which are very much more than personal taxes even if they are dead simple.

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #774 on: May 24, 2019, 01:50:14 AM »
Yeah,  I agree.   Being told to incorporate is a lot less "independent operations" than incorporating for your own business reasons / needs.   My contract could not ever be considered "personal services" as it is for well identified "professional services" (engineering).

Anyway, at the end of the day, I did NOT incorporate, but I have to purchase 1 million liability insurance and $500k commercial liability, just for them.   I already had $250k liability for other clients...  So, like a good contractor, I charged them for it as a business expense.   (Transferring the cost of insurance specific to a job to the customer / requester is common in the construction / design industry).

scottish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #775 on: May 24, 2019, 08:04:41 PM »
@scottish
I am not sure what you mean by this "If you transfer the assets in kind the beneficiary assumes the original cost base. "   Is this related to the graduated estate, or apply to anyone at any time (not just an estate dispersement).

I was asking in the context of the graduated estate (because that's what I'm working on).   I don't know about other trusts...

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #776 on: May 25, 2019, 09:55:55 PM »
My friend has a condo and plans to buy a house and rent the condo.
They have a mortgage on the condo for about half the value. They are pre-approved for a house mortgage without selling the condo based on the expected rent. So I think they have their financing ducks in a row. 

Any tax tips?

I thought they should get the condo appraised to have a valuation date as of today when they switch it from their prime residence to a rental.

Can they then remortgage it and use the extra cash towards their new house? (Yes I assume, but what about my next question.)

Would they be able to write off all the rental condo mortgage interest against rental income?

I am not exactly sure when their current condo mortgage is up for renewal. If it is 2 years from now, could they do the remortgage then & slap a lump sum on their personal residence or should it all happen now?

Basically looking for tax saving tips now and in the future if they sell the condo.

daverobev

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #777 on: May 26, 2019, 04:47:50 AM »

I thought they should get the condo appraised to have a valuation date as of today when they switch it from their prime residence to a rental.


Yes, makes it cleaner. Even just a couple of agents giving a valuation.

Quote
Can they then remortgage it and use the extra cash towards their new house? (Yes I assume, but what about my next question.)

Yes.

Quote
Would they be able to write off all the rental condo mortgage interest against rental income?

No, the purpose of that money is to buy the new house. So obviously don't repay the condo mortgage with spare cash, repay the mortgage on the new house (should they want to do that).

And similarly, they can borrow against either property to finance a new rental purchase, or renovations. It is what the money is borrowed for that is important.

They could also take a mortgage or HELOC on either property, invest in the stock market in an unregistered account, and deduct the interest (as long as it is kept clean and separate!) - see the Smith Manoeuvre.

K-ice

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #778 on: May 27, 2019, 09:22:09 PM »
Back to my Condo to house scenario.

What if they sold the condo then bought another rental condo & the house?

In that case you would obviously put the minimum down payment on the rental condo & more on the new home. All of the mortgage on the rental would be tax deductible no doubt.

When you change the usage of a primary residence isnít it considered a deemed deposition?

So Iím not sure why someone couldnít refinance it based on fair market value at that time and deduct the interest going forward.

daverobev

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #779 on: May 28, 2019, 02:09:34 AM »
Back to my Condo to house scenario.

What if they sold the condo then bought another rental condo & the house?

In that case you would obviously put the minimum down payment on the rental condo & more on the new home. All of the mortgage on the rental would be tax deductible no doubt.

When you change the usage of a primary residence isnít it considered a deemed deposition?

So Iím not sure why someone couldnít refinance it based on fair market value at that time and deduct the interest going forward.

Because it isn't new money being borrowed for the purposes of investing. They could take the money out of the condo to buy something else that is investing, but if "that" money goes to buying a primary residence it is not deductible. You can't borrow to buy something you already own - I get what you're saying but it just doesn't work like that. That money that you are borrowing is for personal use, not business use. Believe me, Canada is actually pretty generous with this to begin with.

Just say - $500k property for personal use, $100k mortgage; sell and get $400k cash.

Put $100k of that $400k down on a $500k rental = $400k mortgage deductible, and $300k down on a $500k primary residence = $200k not deductible.

Mbdlivingstone

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #780 on: June 14, 2019, 08:42:54 PM »
Hey MMM'ers

I'm a Canadian Chartered Accountant with a significant amount of tax experience.

Just throwing this out there - this is the time to reassess your taxes and get questions answered. The holidays is far too late for appropriate tax planning.

If you have questions about Can"eh"dian taxes - I would be more than happy to offer the MMM discount of free advice. I hope this can serve as a reference point for future discussions for those of us who choose to live in Igloo's and drink Maple Syrup, as the tax discussions in the forum tend to revolve around our Southern NeighBOURS.

You ask - I'll do my best to answer based on what you provide.

Let the boring tax discussion begin!

Hi CB,

My wife and I would love if you would take the time to offer us advice on our plan. We are a Canadian couple, ages 32, and 28, with no children, currently living in British Columbia.

We have 600,000 in investments, no debt, and no other assets. Approximately 150,000 in our RRSPs, 100,000 in TFSAs and 350,000 in our joint taxable account. We are 100% in equity ETFs, specifically 80% in XAW (MSCI All-Country World Index Ex- Canada) and 20% in VCN (Canada Total stock market), which we have in the taxable account since Canadian dividends are taxed favourably. We have no other income.

We intend to live a very low cost lifestyle by continuously traveling abroad, staying in low cost countries and doing work exchanges for free food and shelter, such as Workaway.info or WWOOF. By not staying too long in any one country and not working for money, we will remain tax residents of Canada, which we think is favourable with low income.

Our withdrawal strategy is as follows:
We will have a mix between a variable withdrawal strategy at 4%, and a constant withdrawal strategy at 2%. How it will work is we will become comfortable living at 2% of our initial portfolio value; all of our essential expenses will be covered by this. At 600,000 this would be 12,000. Once we are comfortable with this, we can apply the variable withdrawal strategy at 4%, which applies a 4% spending rate to the portfolio value each year, but anything beyond 12,000 will be entirely discretionary expenses and we likely won't use it all. These might seem like very conservative spending rates but we want our money to grow so we have more when we are older or have children.

As for taxes, we intend to stay under the Basic Personal Amount each year, so as of 2019 we would have roughly 24,000 combined, tax-free. Since we estimate we will only require 12,000, our strategy is to calculate our capital gains and dividends every December, subtract the taxable income from the Basic Personal Amount, and then withdraw the rest of the Basic Personal Amount from the RRSP, keeping our average tax rate close to 0%. The money that we don't intend to spend will be reinvested into the taxable account. We will eventually settle in another country. We are thinking in approximately 10 years, so it would be nice to withdraw from the RRSP at 0%, then to pay a flat rate of 25% as a non-existent. On top of this, we imagine that our expenses will increase in the future. Another argument for withdrawing from the RRSP now.  Am I missing something?

Another tax strategy we have concerning the Basic Personal Amount is to do capital gains harvesting. Lets say we have successfully depleted our RRSPs for simplicity.  In December we will calculate our taxable capital gains and dividends. If the Basic Personal Amount will encompass more taxable income, we will calculate what capital gains we should have and simply sell and buy them again. This will help to minimize the deemed disposition when we eventually expatriate.

Also.. (sorry its getting long) what about provincial residency? I have found certain virtual mailbox services that will collect your mail while your away and look like a home address, for example anytimemailbox.com. Will this be sufficient? I understand that provincial residency is based on ties. So I will tell you our ties. My wife is originally from Poland so she doesn't have any family here. I have a mother in Ontario and don't have much other family. We currently live in BC, and I have a driver's license here. We use an online bank (manicure) and an online brokerage. Other than that we will be selling everything and living out of our backpacks so we don't have many ties. Could we simply choose any province we want??? Would we need to at least get a driver's license in that province as well as the virtual mailbox? I was thinking that Alberta or Nunavut would be the best options for taxes for our low-income strategy. Any thoughts? We really don't want to be in trouble for tax fraud when we really won't be living in Canada and its not really our fault that Canada need a us to establish residency in another country before it will stop taxing us and we need to have a Canadian address in a certain province to do that!

One more question. Earlier I explained our strategy to do work exchanges instead of paid work but I know that many digital nomads do paid work while traveling. What are the tax risks of this? I don't want us to accidentally trigger residency in one of these countries and complicate our tax situation. Am I right to think this way?

Thanks a lot! I hope you will have the time an patience to read all that.

Matt and Sylwia

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #781 on: June 18, 2019, 01:00:32 PM »
Hello,

My apologies if this questions has been asked already.

I'm wondering what the tax implications are of owning and selling US stocks in registered and non-registered accounts?

For example, if I purchase a US stock like BYND (beyond meat) for $100 USD and sell it at $200 USD what are the tax implications for a regular non-registered account, a TFSA or an RRSP?  Are there tax implications on an annual basis of just holding a stock that's appreciating in value without selling it?  What if the company pays dividends?

My general understanding is there's no real advantage to using a TFSA for US stocks.  If you could get into the "why's" a bit more specifically that would be greatly appreciated.

Thanks!

RichMoose

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #782 on: June 18, 2019, 03:01:21 PM »
Hello,

My apologies if this questions has been asked already.

I'm wondering what the tax implications are of owning and selling US stocks in registered and non-registered accounts?

For example, if I purchase a US stock like BYND (beyond meat) for $100 USD and sell it at $200 USD what are the tax implications for a regular non-registered account, a TFSA or an RRSP?  Are there tax implications on an annual basis of just holding a stock that's appreciating in value without selling it?  What if the company pays dividends?

My general understanding is there's no real advantage to using a TFSA for US stocks.  If you could get into the "why's" a bit more specifically that would be greatly appreciated.

Thanks!
In a registered account (RRSP, TFSA, etc.) there are no capital gains taxes applicable. In a TFSA, there is a tax on dividends that are withheld at the U.S. side (15% of dividend payment when you sign the W-8BEN) and you cannot claim back this foreign tax paid. In an RRSP you are exempted from U.S. withholding taxes on dividends. Withholding taxes are deducted automatically, so not an issue at tax time.

Outside of a registered account you must pay capital gains taxes, taxes on the dividend income, and the withholding tax at 15% (with W-8BEN). The withholding tax is automatically deducted from the dividend payment, but here you can claim back the withholding taxes on your tax return as a foreign tax paid. Dividends must be reported and are taxed as regular income at tax time and you must adjust the dividend amount for Canadian currency on the date it is issued. Capital gains are taxed at the normal capital gains inclusion rate (50%) if you sell during the tax year, but again you must adjust for Canadian currency on the buy date and sell date.

People avoid holding U.S. dividend stocks in a TFSA because you lose the 15% withholding tax and you cannot claim it back. This is not an issue for stocks that don't pay dividends, or where dividends are a tiny part of the overall return.
« Last Edit: June 18, 2019, 03:02:55 PM by RichMoose »

RichMoose

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #783 on: June 18, 2019, 03:40:21 PM »
My wife and I would love if you would take the time to offer us advice on our plan. We are a Canadian couple, ages 32, and 28, with no children, currently living in British Columbia.

We have 600,000 in investments, no debt, and no other assets. Approximately 150,000 in our RRSPs, 100,000 in TFSAs and 350,000 in our joint taxable account. We are 100% in equity ETFs, specifically 80% in XAW (MSCI All-Country World Index Ex- Canada) and 20% in VCN (Canada Total stock market), which we have in the taxable account since Canadian dividends are taxed favourably. We have no other income.

We intend to live a very low cost lifestyle by continuously traveling abroad, staying in low cost countries and doing work exchanges for free food and shelter, such as Workaway.info or WWOOF. By not staying too long in any one country and not working for money, we will remain tax residents of Canada, which we think is favourable with low income.

Our withdrawal strategy is as follows:
We will have a mix between a variable withdrawal strategy at 4%, and a constant withdrawal strategy at 2%. How it will work is we will become comfortable living at 2% of our initial portfolio value; all of our essential expenses will be covered by this. At 600,000 this would be 12,000. Once we are comfortable with this, we can apply the variable withdrawal strategy at 4%, which applies a 4% spending rate to the portfolio value each year, but anything beyond 12,000 will be entirely discretionary expenses and we likely won't use it all. These might seem like very conservative spending rates but we want our money to grow so we have more when we are older or have children.

As for taxes, we intend to stay under the Basic Personal Amount each year, so as of 2019 we would have roughly 24,000 combined, tax-free. Since we estimate we will only require 12,000, our strategy is to calculate our capital gains and dividends every December, subtract the taxable income from the Basic Personal Amount, and then withdraw the rest of the Basic Personal Amount from the RRSP, keeping our average tax rate close to 0%. The money that we don't intend to spend will be reinvested into the taxable account. We will eventually settle in another country. We are thinking in approximately 10 years, so it would be nice to withdraw from the RRSP at 0%, then to pay a flat rate of 25% as a non-existent. On top of this, we imagine that our expenses will increase in the future. Another argument for withdrawing from the RRSP now.  Am I missing something?

Another tax strategy we have concerning the Basic Personal Amount is to do capital gains harvesting. Lets say we have successfully depleted our RRSPs for simplicity.  In December we will calculate our taxable capital gains and dividends. If the Basic Personal Amount will encompass more taxable income, we will calculate what capital gains we should have and simply sell and buy them again. This will help to minimize the deemed disposition when we eventually expatriate.

Also.. (sorry its getting long) what about provincial residency? I have found certain virtual mailbox services that will collect your mail while your away and look like a home address, for example anytimemailbox.com. Will this be sufficient? I understand that provincial residency is based on ties. So I will tell you our ties. My wife is originally from Poland so she doesn't have any family here. I have a mother in Ontario and don't have much other family. We currently live in BC, and I have a driver's license here. We use an online bank (manicure) and an online brokerage. Other than that we will be selling everything and living out of our backpacks so we don't have many ties. Could we simply choose any province we want??? Would we need to at least get a driver's license in that province as well as the virtual mailbox? I was thinking that Alberta or Nunavut would be the best options for taxes for our low-income strategy. Any thoughts? We really don't want to be in trouble for tax fraud when we really won't be living in Canada and its not really our fault that Canada need a us to establish residency in another country before it will stop taxing us and we need to have a Canadian address in a certain province to do that!

One more question. Earlier I explained our strategy to do work exchanges instead of paid work but I know that many digital nomads do paid work while traveling. What are the tax risks of this? I don't want us to accidentally trigger residency in one of these countries and complicate our tax situation. Am I right to think this way?

Thanks a lot! I hope you will have the time an patience to read all that.

Matt and Sylwia
I don't think CPA-CB is active on the forum anymore. He hasn't responded to posts for several years. I might be able to offer some help since I have looked at this myself for my move.

You have a lot of the tax and income basics down correctly, so I'll ignore that part. What you need to focus on is residency. Every country has different residency rules so you need to be very mindful of that before going to each country. Most say something like more than 183 days in a 12 month period, but starting from the date of entry. So it could be interpreted as the intention to stay more than 183 days, or back taxes will be owing if you cross that amount. However, some countries (like Canada) have more complex tax residency tests. There are also implications for certain countries that Canada has tax treaties with that could change your residency status from the normal rules.

With Canada, you cannot simply choose a province or territory that is best suited to your income and run with that. You must have residency ties. It sounds like you will have no significant ties to any province (no home, no spouse, no dependents in any province). This means you will need to try make a case based on secondary ties and that could be very difficult. I doubt you could meet this standard for any province, except maybe Ontario if you go back there regularly to visit family, use a mailing address there, have a short-term lease agreement in place when you go back to visit, have an Ontario DL, have Ontario Health Insurance, own a car there, store your belongings there, etc.. Most provinces will consider you not to be a resident if you haven't lived there for 6 months, so that could become an issue, especially for a DL and health insurance.

Provided you don't trigger tax residency in another country based on their standards or based on their tax treaty with Canada, I think it's most likely that you will be considered a "deemed resident", but not a "factual resident" for tax purposes. This means you won't have provincial ties and won't pay provincial tax or get access to provincial tax credits and other programs. But you will need to pay the federal surtax (Sec. 120(1) taxes) which can be higher than taxes in many provinces.

If you earn income in another country you will probably be liable to pay non-resident taxes on that income to the country you are in, and to report it on your Canadian tax return. (You would get credit for foreign taxes paid.) In reality, especially for online digital work, I doubt very many people actually do report it. At least not to the country they are residing in. But it could trigger serious consequences if you don't.

Hope this helps!

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #784 on: June 18, 2019, 04:20:29 PM »
Hello,

My apologies if this questions has been asked already.

I'm wondering what the tax implications are of owning and selling US stocks in registered and non-registered accounts?

For example, if I purchase a US stock like BYND (beyond meat) for $100 USD and sell it at $200 USD what are the tax implications for a regular non-registered account, a TFSA or an RRSP?  Are there tax implications on an annual basis of just holding a stock that's appreciating in value without selling it?  What if the company pays dividends?

My general understanding is there's no real advantage to using a TFSA for US stocks.  If you could get into the "why's" a bit more specifically that would be greatly appreciated.

Thanks!
In a registered account (RRSP, TFSA, etc.) there are no capital gains taxes applicable. In a TFSA, there is a tax on dividends that are withheld at the U.S. side (15% of dividend payment when you sign the W-8BEN) and you cannot claim back this foreign tax paid. In an RRSP you are exempted from U.S. withholding taxes on dividends. Withholding taxes are deducted automatically, so not an issue at tax time.

Outside of a registered account you must pay capital gains taxes, taxes on the dividend income, and the withholding tax at 15% (with W-8BEN). The withholding tax is automatically deducted from the dividend payment, but here you can claim back the withholding taxes on your tax return as a foreign tax paid. Dividends must be reported and are taxed as regular income at tax time and you must adjust the dividend amount for Canadian currency on the date it is issued. Capital gains are taxed at the normal capital gains inclusion rate (50%) if you sell during the tax year, but again you must adjust for Canadian currency on the buy date and sell date.

People avoid holding U.S. dividend stocks in a TFSA because you lose the 15% withholding tax and you cannot claim it back. This is not an issue for stocks that don't pay dividends, or where dividends are a tiny part of the overall return.
Just a note to add -- if you are not yet maxed out on your TFSA, it is still a great location to hold ANY stock..even US and foreign dividends, rather than putting them into non-registered.  You lose the foreign tax credits, but you also don't pay Canadaing taxes on the capital gains growth, dividend income, etc.  Over 10 years, this will usually be more important.

   If you are already maxed out on your registered investments, carry on...

IMO, The only items not to put in your TFSA (when you have room) is if you have a higher risk strategy where you need your capital losses from some stocks to offset capital gains on the winners.   Again, subject to your overall holdings and if you are maxed out on registered investments or not.

Mbdlivingstone

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #785 on: June 18, 2019, 06:16:37 PM »

I don't think CPA-CB is active on the forum anymore. He hasn't responded to posts for several years. I might be able to offer some help since I have looked at this myself for my move.

You have a lot of the tax and income basics down correctly, so I'll ignore that part. What you need to focus on is residency. Every country has different residency rules so you need to be very mindful of that before going to each country. Most say something like more than 183 days in a 12 month period, but starting from the date of entry. So it could be interpreted as the intention to stay more than 183 days, or back taxes will be owing if you cross that amount. However, some countries (like Canada) have more complex tax residency tests. There are also implications for certain countries that Canada has tax treaties with that could change your residency status from the normal rules.

With Canada, you cannot simply choose a province or territory that is best suited to your income and run with that. You must have residency ties. It sounds like you will have no significant ties to any province (no home, no spouse, no dependents in any province). This means you will need to try make a case based on secondary ties and that could be very difficult. I doubt you could meet this standard for any province, except maybe Ontario if you go back there regularly to visit family, use a mailing address there, have a short-term lease agreement in place when you go back to visit, have an Ontario DL, have Ontario Health Insurance, own a car there, store your belongings there, etc.. Most provinces will consider you not to be a resident if you haven't lived there for 6 months, so that could become an issue, especially for a DL and health insurance.

Provided you don't trigger tax residency in another country based on their standards or based on their tax treaty with Canada, I think it's most likely that you will be considered a "deemed resident", but not a "factual resident" for tax purposes. This means you won't have provincial ties and won't pay provincial tax or get access to provincial tax credits and other programs. But you will need to pay the federal surtax (Sec. 120(1) taxes) which can be higher than taxes in many provinces.

If you earn income in another country you will probably be liable to pay non-resident taxes on that income to the country you are in, and to report it on your Canadian tax return. (You would get credit for foreign taxes paid.) In reality, especially for online digital work, I doubt very many people actually do report it. At least not to the country they are residing in. But it could trigger serious consequences if you don't.

Hope this helps!

Thanks a lot! That was really useful!

As for the complexity of the residency tests in various countries, do you think it is wise then to do our plan and only do unpaid volunteer work that could provide food/shelter, while ensuring we leave the country within it's normal visitor visa requirements? I feel that this removes the complexity of wondering if I have to file taxes in that country because of foreign income and tax treaties.

I read a lot of information from the CRA and I agree that we will probably be Deemed Residents. We will not have the majority of ties you mentioned. We will not visit often or maintain a rental.

I was concerned about the federal surtax at first but I carefully went through the math on the Schedule 1 form and if I spend less than the federal Basic Personal Amount, my tax rate will be exactly 0%, since the surtax is a percentage of the Basic Federal Tax, which is calculated first. This could actually be better than to be in a province that has a low provincial Basic Personal Amount. I can see how as income increases, this will not be preferred, however.

Do you know of any tax software that will allow me to file as a deemed resident or do I have to do all of this by hand, or worse - hire someone?

Do you know if dividends and capital gains for a deemed resident are taxed the same as an ordinary resident or similarly to a non-resident?

Thanks a lot!

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #786 on: June 19, 2019, 06:27:10 AM »
Hi,

In the near future I will be relocating to the US as a permanent resident (married a US Citizen).

The concept of the Canadian 'Departure Tax' is giving me sleepless nights.
The only assets I will have left in Canada will be my Home (being rented out) and my RRSP.
The house was my principal residence, will this be part of the 'deemed disposition' rule for the departure tax?

Also, I owe approximately $20,000 on my RRSP since I used it back in 2014 as part of the HBP (Home Buyer's Plan). I understand that if you emigrate you have to repay whatever is outstanding within a year or something...is there a way to avoid having to pay this amount in such a short time frame?

Thanks in advance!

Cobb

daverobev

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #787 on: June 19, 2019, 08:04:14 AM »
Hi,

In the near future I will be relocating to the US as a permanent resident (married a US Citizen).

The concept of the Canadian 'Departure Tax' is giving me sleepless nights.
The only assets I will have left in Canada will be my Home (being rented out) and my RRSP.
The house was my principal residence, will this be part of the 'deemed disposition' rule for the departure tax?

Also, I owe approximately $20,000 on my RRSP since I used it back in 2014 as part of the HBP (Home Buyer's Plan). I understand that if you emigrate you have to repay whatever is outstanding within a year or something...is there a way to avoid having to pay this amount in such a short time frame?

Thanks in advance!

Cobb

You get to use the primary residence exemption + 1 free year. So basically you are deemed to have sold it at FMV the date you become non resident; declare as such; and pay the capital gains owing which will be none.

At that point, you have reset your cost base to that value as if you'd reacquired it. So any gain going forwards is taxable.

A quick google says no, you're fucked re the RRSP HBP.

Sell the house, repay the HBP. Much less hassle in the long run! Canada will take their cut of the rental income, you'll have to keep track in both CAD and USD (you have to depreciate houses in the US).

RichMoose

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #788 on: June 19, 2019, 09:12:05 AM »
Thanks a lot! That was really useful!

As for the complexity of the residency tests in various countries, do you think it is wise then to do our plan and only do unpaid volunteer work that could provide food/shelter, while ensuring we leave the country within it's normal visitor visa requirements? I feel that this removes the complexity of wondering if I have to file taxes in that country because of foreign income and tax treaties.

I read a lot of information from the CRA and I agree that we will probably be Deemed Residents. We will not have the majority of ties you mentioned. We will not visit often or maintain a rental.

I was concerned about the federal surtax at first but I carefully went through the math on the Schedule 1 form and if I spend less than the federal Basic Personal Amount, my tax rate will be exactly 0%, since the surtax is a percentage of the Basic Federal Tax, which is calculated first. This could actually be better than to be in a province that has a low provincial Basic Personal Amount. I can see how as income increases, this will not be preferred, however.

Do you know of any tax software that will allow me to file as a deemed resident or do I have to do all of this by hand, or worse - hire someone?

Do you know if dividends and capital gains for a deemed resident are taxed the same as an ordinary resident or similarly to a non-resident?

Thanks a lot!
Volunteering for some benefits in kind, such as food/shelter, are probably okay in nearly all countries and would very likely not require you to report any income to that country even as a non-resident. Again, getting very technical you would have to look at the rules by country. Some consider benefits in kind to be a form of taxable income. I would assume that often times the letter of the law isn't enforced as such for volunteer situations.

Yes, at low incomes (~$12,000 each), the federal surtax won't matter much. It starts to get quite disappointing at higher income levels because you pay higher tax rates but you get essentially zero benefits for your money.

If you are a deemed, but not factual resident you cannot use NETFILE. This means paper forms. Yay!

Capital gains are normal at 50% inclusion of the gain at disposition. Dividends from Canadian corporations are eligible for the federal dividend tax credit (line 425) and must be grossed up the same way.

Mbdlivingstone

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #789 on: June 19, 2019, 05:22:54 PM »

Volunteering for some benefits in kind, such as food/shelter, are probably okay in nearly all countries and would very likely not require you to report any income to that country even as a non-resident. Again, getting very technical you would have to look at the rules by country. Some consider benefits in kind to be a form of taxable income. I would assume that often times the letter of the law isn't enforced as such for volunteer situations.

Yes, at low incomes (~$12,000 each), the federal surtax won't matter much. It starts to get quite disappointing at higher income levels because you pay higher tax rates but you get essentially zero benefits for your money.

If you are a deemed, but not factual resident you cannot use NETFILE. This means paper forms. Yay!

Capital gains are normal at 50% inclusion of the gain at disposition. Dividends from Canadian corporations are eligible for the federal dividend tax credit (line 425) and must be grossed up the same way.

Thank you. That was very clear and helpful.

I actually ran the numbers on federal surtax compared to British Columbia provincial tax and the surtax was preferable up to just over 15,000 per person. Which is actually really unfair since most people will pay more without getting any of the benefits. They should at least allow us to utilize the healthcare system if we become sick and come back to Canada since we are paying for it in taxes.

Okay, so from what you say there's not much change with regards to capital gains and dividends.

Finding the facilities to efficiently print and mail tax forms sounds like it will be a fun challenge in some countries lol.

Do you think we should file an NR73 form after we leave to determine residency or can we just file as deemed residents without announcing it?

Thanks again!

cobb87

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #790 on: June 20, 2019, 05:53:38 AM »
Hi,

In the near future I will be relocating to the US as a permanent resident (married a US Citizen).

The concept of the Canadian 'Departure Tax' is giving me sleepless nights.
The only assets I will have left in Canada will be my Home (being rented out) and my RRSP.
The house was my principal residence, will this be part of the 'deemed disposition' rule for the departure tax?

Also, I owe approximately $20,000 on my RRSP since I used it back in 2014 as part of the HBP (Home Buyer's Plan). I understand that if you emigrate you have to repay whatever is outstanding within a year or something...is there a way to avoid having to pay this amount in such a short time frame?

Thanks in advance!

Cobb

You get to use the primary residence exemption + 1 free year. So basically you are deemed to have sold it at FMV the date you become non resident; declare as such; and pay the capital gains owing which will be none.

At that point, you have reset your cost base to that value as if you'd reacquired it. So any gain going forwards is taxable.

A quick google says no, you're fucked re the RRSP HBP.

Sell the house, repay the HBP. Much less hassle in the long run! Canada will take their cut of the rental income, you'll have to keep track in both CAD and USD (you have to depreciate houses in the US).

Thanks a lot! I guess my only choice is to sell the house then. Wish we didn't have to, would have been great to let it appreciate and sell it years down the road for a profit.

daverobev

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #791 on: June 20, 2019, 07:12:39 AM »
Hi,

In the near future I will be relocating to the US as a permanent resident (married a US Citizen).

The concept of the Canadian 'Departure Tax' is giving me sleepless nights.
The only assets I will have left in Canada will be my Home (being rented out) and my RRSP.
The house was my principal residence, will this be part of the 'deemed disposition' rule for the departure tax?

Also, I owe approximately $20,000 on my RRSP since I used it back in 2014 as part of the HBP (Home Buyer's Plan). I understand that if you emigrate you have to repay whatever is outstanding within a year or something...is there a way to avoid having to pay this amount in such a short time frame?

Thanks in advance!

Cobb

You get to use the primary residence exemption + 1 free year. So basically you are deemed to have sold it at FMV the date you become non resident; declare as such; and pay the capital gains owing which will be none.

At that point, you have reset your cost base to that value as if you'd reacquired it. So any gain going forwards is taxable.

A quick google says no, you're fucked re the RRSP HBP.

Sell the house, repay the HBP. Much less hassle in the long run! Canada will take their cut of the rental income, you'll have to keep track in both CAD and USD (you have to depreciate houses in the US).

Thanks a lot! I guess my only choice is to sell the house then. Wish we didn't have to, would have been great to let it appreciate and sell it years down the road for a profit.

All the profit (from the year after it stopped being your home) would be taxable first in Canada as capital gains.

Why not just buy a house in the US?

RichMoose

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #792 on: June 20, 2019, 07:39:04 AM »
Thank you. That was very clear and helpful.

I actually ran the numbers on federal surtax compared to British Columbia provincial tax and the surtax was preferable up to just over 15,000 per person. Which is actually really unfair since most people will pay more without getting any of the benefits. They should at least allow us to utilize the healthcare system if we become sick and come back to Canada since we are paying for it in taxes.

Okay, so from what you say there's not much change with regards to capital gains and dividends.

Finding the facilities to efficiently print and mail tax forms sounds like it will be a fun challenge in some countries lol.

Do you think we should file an NR73 form after we leave to determine residency or can we just file as deemed residents without announcing it?

Thanks again!
Most countries will have print shops and internet cafes / co-working places where you can do the printing. Even mailing shouldn't be a problem in most countries when using a private parcel shipping company. If you happen to be in countries in Europe or more developed Asia (Japan, Korea, Taiwan) the postal service is reliable.

I would file a NR73 in your situation just to gain clarity. Normally deemed residents are overseas government employees, so your situation may be a little more unique.
I won't be filing one in my personal situation since I have no plans to return to Canada to live. I will also meet the definitions to become a legal tax resident of Vietnam, including by the terms of the Canada-Vietnam Tax Agreement.

Mbdlivingstone

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #793 on: June 20, 2019, 07:37:38 PM »
Most countries will have print shops and internet cafes / co-working places where you can do the printing. Even mailing shouldn't be a problem in most countries when using a private parcel shipping company. If you happen to be in countries in Europe or more developed Asia (Japan, Korea, Taiwan) the postal service is reliable.

I would file a NR73 in your situation just to gain clarity. Normally deemed residents are overseas government employees, so your situation may be a little more unique.
I won't be filing one in my personal situation since I have no plans to return to Canada to live. I will also meet the definitions to become a legal tax resident of Vietnam, including by the terms of the Canada-Vietnam Tax Agreement.

Thank you. We also don't intend to return to Canada so we might be in the same situation. We also plan to eventually emigrate.

I wonder what you think about settling in another country. There always seems to be a trade-off between the following factors:

-Freedom to travel for more than 6 months while retaining residency in that country for tax purposes (I'm sure Canada would win all tie-breakers since its our country of citizenship);
-No/low capital gains tax rates;
-Quick/cheap/efficient emigration process;
-Cheap cost of living;
-Decent living conditions and healthcare

I wonder what made you choose Vietnam or if you know any countries that seem to fit this description.

Thanks for your help


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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #794 on: June 20, 2019, 09:53:16 PM »
Posting to follow

RichMoose

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #795 on: June 21, 2019, 08:32:22 AM »
Most countries will have print shops and internet cafes / co-working places where you can do the printing. Even mailing shouldn't be a problem in most countries when using a private parcel shipping company. If you happen to be in countries in Europe or more developed Asia (Japan, Korea, Taiwan) the postal service is reliable.

I would file a NR73 in your situation just to gain clarity. Normally deemed residents are overseas government employees, so your situation may be a little more unique.
I won't be filing one in my personal situation since I have no plans to return to Canada to live. I will also meet the definitions to become a legal tax resident of Vietnam, including by the terms of the Canada-Vietnam Tax Agreement.

Thank you. We also don't intend to return to Canada so we might be in the same situation. We also plan to eventually emigrate.

I wonder what you think about settling in another country. There always seems to be a trade-off between the following factors:

-Freedom to travel for more than 6 months while retaining residency in that country for tax purposes (I'm sure Canada would win all tie-breakers since its our country of citizenship);
-No/low capital gains tax rates;
-Quick/cheap/efficient emigration process;
-Cheap cost of living;
-Decent living conditions and healthcare

I wonder what made you choose Vietnam or if you know any countries that seem to fit this description.

Thanks for your help
My goal was to get out of Canada's tax system legally while setting up our finances for a future where we can be more flexible about where we live without worrying about big tax bills for minimal services.

Vietnam worked for us because they have low cost of living, 0.1% tax on stock transactions, and it was easy for my wife to get a work visa (with a companion visa for me). On top of that it is a safe country, has awesome good, and is a great base to see the rest of eastern Asia.

The biggest issue for us is the tax liability on RRSP and our pensions. On the one hand I look at it as contributing at 39% and taking out at around 25%, a decent spread. But it is still 25% gone. If I managed it very carefully as in your plan, I could probably withdraw from my RRSP/pension at 10% or less. If we stayed in Canada, I could probably engineer even lower taxes using a RRSP self-mortgage, but my wife would pay much more tax on her income. Bottom line though, it will cost around $50,000 for us to get out of our RRSPs & pensions (not including LIRA). That is the same amount of money my wife and I paid in income tax last year. By moving we are going to take a tax hit up front, but we will likely save many times that amount in the long term.

If you are seriously considering a permanent exit from Canada, you should think about this tax trade-off as well. You have a few options:
1. Take the tax hit now (25% of $150,000 + outstanding capital gains tax on NR accounts) and establish in a low/no tax country;
2. Try retain residency status in a province to maximize your RRSP withdrawals and bleed down that account while retaining benefits like health care (but acknowledging your capital gains liability may increase in your NR account); or
3. Become a deemed resident and receive no benefits, but again try maximize your RRSP withdrawals at very low tax rates and bleed down the account (again cap gain tax liability may increase).

Some decent and safer countries to consider are Belize, Costa Rica, Panama, Ecuador, Uruguay, Malaysia, Georgia, Thailand (harder to get a visa) or Malta (also harder to get a visa).

You don't need to worry too much about taxation based on citizenship (unless you are American). Even though you are Canadian, it could be very advantageous to get out of Canada, establish legal tax residency in Panama (or another country above), then start traveling from there. You file your taxes in Panama as required and travel the world as a tourist using your Canadian passport. As long as you don't trigger new tax residency rules in another country, you can even travel to higher tax places like western Europe and live there for less than 6 months without paying a dime in income tax.

Missy B

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #796 on: June 23, 2019, 09:18:58 PM »
Corporate T2 Tax Question

Hi folks-
I'm doing my own corporate return and snagging on some GST-related things.

I file Quick Method, and claim back the ITC for GST spent on small tools and other capital costs. I'm confused about when to leave the GST in and take it out. (I thought I knew, but my return doesn't reconcile so I'm re-examining my assumptions.)

Those of you with corporations...
Do your tangible assets (line 1740 on Schedule 100) include the GST you paid for them, and are you using Quick Method or not?
For those who are using Quick Method, In your Schedule 8 (Capital Cost Allowance) are you also decreasing the amount to be depreciated by the GST (this would be in row 4, Adjustments).

For Income (line 8000 Sch 125) are you using gross income less net GST paid? For income line 8000 on the T2, I use my gross less net GST paid (3.6% of the gross, less $300 credit and ITC's for GST paid on CCA acquistions).

I thought I was supposed to include GST in the tangible asset costs, but not in the amount that is being calculated for CCA, because I got that GST refunded in ITC's.

Any light any of you can shed on this I'd very much appreciate. It seems like it should be simple, but there aren't clear answers online, and Revenue Canada's agents give conflicting answers and aren't really clear themselves.

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #797 on: July 06, 2019, 05:21:42 PM »
Hello, thank you for offering your advice :)

I have two questions as an incorporated contractor in Ontario.

1. I travel out of town for work often.  According to the CRA website, my situation should permit a $51 per day meal "per diem" that is not taxed.  I have been afraid to use this, as I wonder if the CRA would consider it "reasonable".  My actual meal costs are much less as I usually bring my breakfast and lunch with me.  I have been writing off the actual amounts on any receipts (usually Tim Hortons bagels, $2-3) instead. Should I be taking advantage of the $51/day deduction, and pay myself a non-taxable per diem instead of the bagel receipts?  This would be ideal as the deduction would be much larger.

2. I have been trying to do most of my corporate taxes myself but still use an accountant to file my corporate return.  I input my expenses and bank statements into Quickbooks.  She charges me for the return and also insists on charging me for "payroll".  I am confused as to what payroll is and what I am actually paying for.  I do not pay myself monthly and have no employees.  I pay myself one lump sum at the start of the year, from which I deduct income tax and CPP and pay directly to the receiver general the month following the lump sum payment.  At year end I pay myself a bonus from which I again deduct income tax and CPP and pay to the receiver general.  Does payroll require any further work? Is there something that needs to be filed to the CRA each time I pay myself, or is a payment to the receiver general enough?

My accountant unfortunately won't answer these questions, telling me it is all too complicated to understand...

Your advice is appreciated!

Goldielocks

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #798 on: July 10, 2019, 07:25:32 PM »
^^

1.   I don't claim a per diem, but I don't usually travel for work and most food is client "entertainment", with 50% rate for claiming against income.

2.  Payroll includes filing the payroll form with CRA on gross, tax remitted, CPP, EI, etc.  This is done every pay period, or monthly if less often (with a $0 for the months with zero).  Then there is year end T4 statement(s).    Could you ask to take over "payroll"?  It is not a lot of work, and you would still use your accountant's advice on how much to pay yourself each year.... you would just do the forms. 

jwhid

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #799 on: July 12, 2019, 02:05:25 PM »
Iíve been reading through your posts and really appreciate the insight youíve been giving regarding tax implications for us Canadians.  Lots of information out there for our comrades south of the border, so Iíve struggled a bit to make a plan that best suits my situation and would appreciate your feedback.

At 43 (currently 41)  I plan to FIRE.  Wife and 2 dependent children, Alberta resident, however work in BC.

My expected Portfolio:

RRSP - $250k  through Sunlife
TFSA - $100k Ė invested in XAW

DCPP -$250k value currently with Sunlife.  I plan to move this to an LIRA and then LIF at 55.

Taxable investment account with RBC - $100k value, a mix of ETFís and a few dividend focused stocks.

Total portfolio value of $700k.

Rental Profit of $30k annually (20k per annum from a multifamily in AB and 10k per annum from a condo in Arizona)

With a 4% withdrawal rate I anticipate my income will be roughly $60k per year (taxes notwithstanding).

I would really appreciate any insight or feedback on best way to minimize my tax implications once I pull the trigger and FIRE in 2 years.