Author Topic: Can"EH"dian Tax - You have questions, I have answers  (Read 106806 times)

GuitarStv

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #200 on: March 05, 2015, 09:34:29 AM »
Funny question for you:

I'm part of Ontario's MicroFIT program where we sell what we generate from our solar panels to Ontario Hydro and they pay us for the power and HST.  They screwed up our HST payments last year and paid us a fraction of the amount we should have received.  I caught it this month and have made them pay back the missing money.

For my taxes for 2014 do I report the HST that they paid us, or the HST that they owed us (and paid back in 2015)?

GuitarStv

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #201 on: March 05, 2015, 12:36:46 PM »
This is my second year in the program.  Last year I reported income received during the year, so this would be 'cash reporting' then?

In my case the problem was caught, cheque was issued and I received the missing money all in 2015.  The actual amount for energy generated was correctly paid out to me as per contract, just the HST wasn't paid properly on top of that.

I caught the underpayment error after filing my taxes and am wondering if I'll get in trouble over this.  From the above, it sounds like I should have reported the missing amount on my taxes.

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #202 on: March 05, 2015, 12:50:55 PM »
Tuxedo thank you very much for your reply. You have asked some good questions.
This is definitely not an easy decision and I have been tossing it around for over a year as I approached my 55th birthday.
Being an avid reader of MMM for several years now has given me the courage to look outside the financial box and to take some risks. Yes there are always risks in the market, risks I won't have if I take the pension, but is that risk not the same for anyone who invests in their rrsp's or TFSA's? Is that the line I draw, the actual possible risk I am taking with my pension?
With regard to your questions:
How important is your earning income to your family income mix, especially in retirement. Can you easily get by with just your husbands income / pension? It will be more important in 3 years when my husband retires and begins his pension (approx $3200/month) but we have learned to live on less and we have no debts (house paid for etc).
- Do you guys have a very stable relationship? Yes
- Do you have much for savings outside the pension? We have approx. $75,000 in RRSPs and $24,000 in RESPs (one child still at home in Grade 10; one graduating from post secondary this year;one going into 2nd and final year of post secondary)

- Are you comfortable with losing up to 40% of your investments? Not really! Is anyone? Is it not possible to go moderate risk and still do pretty well (i.e. better than 3.85%)?
- Are you sure you are calculating for inflation when running your own numbers? My bank did a comparison of 2 scenarios: the first assuming a 3.85% inflation rate until I'm 90. The 2nd assuming a 5% return, after fees etc. The numbers showed a good $70,000 difference over time.
- Does that $600 get rolled back once CPP kicks in? I don't think so but I will check on that.
I guess I want the chance to do a little better than the monthly amount, to have the flexibility, to be able to leave it to my kids when I and my husband are gone.
Any further feedback is most welcome!
Typically gov't pensions don't get rolled back due to CPP/OAS - they are fixed, though I'm not familiar with the specifics of your teachers' pension.

Depending on how much pension contribution room you have, you could avoid paying tax on that 93K. The first part of your pension (50k LIRA and 50k unlocked) is presumably the transfer amount within tax limits - you would have already lost this contribution room through your pensions amount on your T4s. If you have 93k contribution room then there is no problem. If you end up having the entire 93k taxed with no other income that year then you'll be left with 170k or so. With a 4% withdrawal rate that would leave you with $6800 per year of sustainable income (4% is based on 7% nominal returns from investments minus 3% inflation).

I put in a starting balance of $170k at firecalc.com with a spending rate of $7200/year adjusted to inflation (same as your pension amount) and over a 30 year period it resulted in a failure rate of 8%. Over a 40 year period the failure rate was 24%. Conversely with a 193k starting balance the failure rates for 30 and 40 year periods were 1.8 and 6.7% respectively.

sky_northern

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #203 on: March 05, 2015, 01:50:33 PM »
Typically gov't pensions don't get rolled back due to CPP/OAS - they are fixed, though I'm not familiar with the specifics of your teachers' pension.
My government pension does.

Kaspian

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #204 on: March 05, 2015, 02:16:41 PM »
I used UFile the way I always did, filed my taxes no problemo, but then realized looking over the printouts there was no Schedule 3 attached or included in the return and there probably should have been.  This is the first time I've ever rebalanced from one fund to another in my non-registered account and I know I have capital gains there to account for.  But the friggin' program never asked me about it. (So much for trust!) I know money shows up from the T3 on "Interest and other investment income" area because it totals correctly for dividends but why didn't the program ask me about capital gains?  Last year I had a T3 as well, but there wouldn't have been gains because I didn't rebalance in the non-reg account.  So maybe when UFile carries forward last year's info it assumed I'd have a T5 but not be declaring a capital gain?

So, my question is:  There should be a Schedule 3 because I transferred from a fund which was valued higher than the "Adjusted Cost Base", right?  This is a TD mutual fund in a non-registered account.  I transferred units from a bond e-series into a US e-series and from the foreign e-series into the Canadian one.  Both of the funds I transferred out of were worth more than their book value.

It sucks, but I'm not too worried about having already filed the return.  I had to make a correction based on dividend income of a T3 a few years ago, did it very easily on the CRA site, and they quickly sent me a new assessment of what I owed.

After note!:  Now I'm really confused because the T3 has a blank Box 21 "Capital Gains".  It's also blank under the "Capital Gains" column of transactions.  Is there another form coming to me from the bank?  Or do maybe the December transactions show up on next years' statements?  Box 30 is what the CRA's guide says you should use for reporting capital gains from a T3 but it's also blank.  WTF?  :(
« Last Edit: March 05, 2015, 03:31:31 PM by Kaspian »
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Posthumane

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #205 on: March 05, 2015, 02:35:20 PM »
Typically gov't pensions don't get rolled back due to CPP/OAS - they are fixed, though I'm not familiar with the specifics of your teachers' pension.
My government pension does.
Interesting, I stand corrected. Would you mind sharing which gov't/dept?

Cathy

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #206 on: March 05, 2015, 03:44:12 PM »
After note!:  Now I'm really confused because the T3 has a blank Box 21 "Capital Gains".  It's also blank under the "Capital Gains" column of transactions.  Is there another form coming to me from the bank?  Or do maybe the December transactions show up on next years' statements?  Box 30 is what the CRA's guide says you should use for reporting capital gains from a T3 but it's also blank.  WTF?  :(

The T3 slip only reports capital gains received as distributions from trusts.
The T5 slip only reports capital gains received as distributions from other securities.

For capital gains from the disposition of securities, you will need to compute it yourself from the records provided to you by your broker. Your broker should have provided you with a Form T5008 or equivalent statement listing your securities transactions for the year. You use that to calculate your capital gains.
« Last Edit: March 05, 2015, 03:49:21 PM by Cathy »
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Kaspian

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #207 on: March 05, 2015, 04:23:33 PM »
Many thanks!  No 'Form T5008' yet--hopeully it just hasn't arrived yet?  It would be nice if somewhere in the CRA's guide or the T3 itself it made a distinction between a capital gain distribution (as opposed to dividend?) and sell/disposition. The T3 boxes as they are and the funds/headings listed in the middle is all pretty confusing.
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Cathy

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #208 on: March 05, 2015, 04:29:06 PM »
"Capital gain dividend" is just another term for capital gains received as a distribution from something other than a trust.

The reason I said "Form T5008 or equivalent statement" is that the broker is not required to issue you a Form T5008. However, they are required to issue you something with the same information (namely, a list of your securities transactions that settled during the year). I believe Questrade calls theirs an "annual statement".
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sky_northern

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #209 on: March 05, 2015, 04:48:14 PM »
Typically gov't pensions don't get rolled back due to CPP/OAS - they are fixed, though I'm not familiar with the specifics of your teachers' pension.
My government pension does.
Interesting, I stand corrected. Would you mind sharing which gov't/dept?
It's the Canadian Government pension plan, I don't work for the Can. Gov. but they manage our plan. You get the same set income, including CPP and Pension, the pension just pays more if you retire before eligible for CPP, then they reduce their pay out once you are pulling CPP.  Of course, OP's might be different, and her CPP could be larger than her pension amount, assuming she had other employment before becoming a teacher.

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #210 on: March 05, 2015, 05:12:03 PM »
Just completed my NETFILE tax return today and sent it in. My overall fed+prov tax rate for 2014 was 10.8%. This means I will have a nice refund coming back even on top of my two T1213 Deduction at Source forms I was approved for.
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Kaspian

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #211 on: March 05, 2015, 10:36:02 PM »
"Capital gain dividend" is just another term for capital gains received as a distribution from something other than a trust.

The reason I said "Form T5008 or equivalent statement" is that the broker is not required to issue you a Form T5008. However, they are required to issue you something with the same information (namely, a list of your securities transactions that settled during the year). I believe Questrade calls theirs an "annual statement".

If I don't get one in the mail from TD, do you think (because I made these switches in December) that I should be using information from the online "TD Mutual Funds Account Statement:  Statement period: October 01,2014 to December 31,2014" ?

It shows the unit and prices of the transfers, but doesn't show the adjusted cost base at the time.

THANKS AGAIN--I REALLY APPRECIATE IT!!!  :)
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Cathy

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #212 on: March 05, 2015, 10:41:29 PM »
It shows the unit and prices of the transfers, but doesn't show the adjusted cost base at the time.

Brokers are under no obligation to calculate your adjusted cost base. You have to calculate that yourself.
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Kaspian

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #213 on: March 05, 2015, 11:01:24 PM »
One more, please?  I've read this:  "The adjusted cost base is calculated by of adding in the cost you paid to purchase all of your investments into a certain stock or mutual fund. Includign dividends."  That is basically what a bank shows as "book value" right?  What I paid for them overall verus "market value"--which they're worth at a given point in time.

I know exactly how many and how much I sold them for (at market value) on the 14th of December.  But what I don't know is what the "book value" was on the 14th.  I assume now I was supposed to write that down at that time?  How the heck can I find it out now?
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Cathy

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #214 on: March 05, 2015, 11:07:14 PM »
"Book value" is an accounting term equal to the purchase price of the item minus some offsetting factors. For the purpose of your brokerage website, the book value is probably the price you paid for the security. That is not going to change over the period you hold it, since the price you paid is fixed when you first bought it (although the average price you paid can change if you buy more of them).

For a mutual fund, in general, the adjusted cost base is the price you paid to purchase the security including any commissions and exchange fees plus any return of capital distributions.

So let's assume you are dealing with security Q. You bought 5 shares of security Q at $5 per share and paid a $1 commission. Then later you bought 3 more shares of security Q at $10 per share and paid another $1 commission.

Your adjusted cost base in Q is $7.125 per share. If you later sell 2 shares of Q at $8 each, you have a capital gain of $0.875 per share, or a total capital gain of $1.75.

Your brokerage records should show what you originally paid for the security. You'll just have to go back in the records to the month or months where you bought the security.
« Last Edit: March 05, 2015, 11:16:01 PM by Cathy »
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Kaspian

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #215 on: March 05, 2015, 11:51:23 PM »
Your brokerage records should show what you originally paid for the security. You'll just have to go back in the records to the month or months where you bought the security.

Ersh... Yeah, dollar cost averaged bi-weekly for two years with extra money thrown in whenever I had it.  Mint says 127 buy or reinvested dividend transactions in the non-registered bond fund since May 2012. TD's eDocument online statements only go back to April 2014.   Guess I have some work to do, huh? 

I never would have guessed one rebalance could be such a nightmare.  ...Going to try to do all rebalancing in the tax sheltered accounts from now on. 

Again--you've been great!  Cheers!
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #216 on: March 09, 2015, 08:02:43 AM »
Just completed my NETFILE tax return today and sent it in. My overall fed+prov tax rate for 2014 was 10.8%. This means I will have a nice refund coming back even on top of my two T1213 Deduction at Source forms I was approved for.

I also fill that T1213 form every year and still get a huge refund. Last year, combined refund was 5k$ and this year it's 6,5k$. I don't really like the idea of lending money to the Gov @ 0% especially because I manage it in a better way...
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Ottawa

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #217 on: April 02, 2015, 07:16:54 AM »
Capital loss question!

While married to my spouse, I suffered a large capital loss in my individual brokerage account which is now carried forward in my name.  We now have a (solely) joint brokerage account. 

Question:  This year we have capital gains.  I am unable to apply my past capital loss against the full 1/2 measure of our total capital gains. I can, of course apply it against my '50%' of the gain since we hold and contributed jointly to our joint brokerage.  Does that make sense?

At any rate, is there any method by which I can maximize use of my carryforward capital losses against my spouse's (50% share) of any future capital gains?

Thanks in advance and good luck with your hectic end of year tax business CPA CB!!

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #218 on: April 02, 2015, 02:38:57 PM »
Capital loss question!

While married to my spouse, I suffered a large capital loss in my individual brokerage account which is now carried forward in my name.  We now have a (solely) joint brokerage account. 

Question:  This year we have capital gains.  I am unable to apply my past capital loss against the full 1/2 measure of our total capital gains. I can, of course apply it against my '50%' of the gain since we hold and contributed jointly to our joint brokerage.  Does that make sense?

At any rate, is there any method by which I can maximize use of my carryforward capital losses against my spouse's (50% share) of any future capital gains?

Thanks in advance and good luck with your hectic end of year tax business CPA CB!!

Hi Ottawa,

Is it truly a jointly held and contributed account? What % of the ACB was purchased by you versus your spouse? You may be able to claim a higher percentage here, if many of the investments were purchased with your funds/earnings.

Can I ask why you have a joint brokerage account? Is it just a trust (legal trust, that is) reason?  When did you incur these losses? Have you had any gains in the past 7 years? If so, you can file a T1-ADJ and apply these capital losses backwards. The good news is that you have 20 years from the year of the loss to carryforward, so they are usable eventually....

From a usability perspective - it's easier if held in your account solely for gains, but it seems like you've changed to joint holdings for a reason.

Cheers,

CPA CB


Ottawa

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #219 on: April 02, 2015, 08:35:35 PM »

Is it truly a jointly held and contributed account?

Yes

What % of the ACB was purchased by you versus your spouse? You may be able to claim a higher percentage here, if many of the investments were purchased with your funds/earnings

Good question...but our paycheques are effectively the same.  So, 50%.


Can I ask why you have a joint brokerage account? Is it just a trust (legal trust, that is) reason? 

Mainly for estate planning.  The fact that we each contribute 50% helps with the simplicity.  However, as we plan for ER, it is likely that my spouse will retire at least a year before me.  At that time I will continue to contribute.  I suppose that could potentially complicate things or does it really matter much? 

When did you incur these losses?

Just a few years ago...

Have you had any gains in the past 7 years? If so, you can file a T1-ADJ and apply these capital losses backwards.

Yes, have carried back.

The good news is that you have 20 years from the year of the loss to carryforward, so they are usable eventually....

From a usability perspective - it's easier if held in your account solely for gains, but it seems like you've changed to joint holdings for a reason.


This is what I figure, and am not too worried in the end...The triggered capital gains have been pretty minor on purpose.  However, at some stage in the future we will probably realise a larger cap gain.  Is there a way to plan for this now, or will only 1/2 the capital gain be put up against a carryforward loss?  Of course, if the capital gain is large enough the loss will be used up!  :-)

Thanks!
Ottawa 
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #220 on: April 06, 2015, 01:06:53 PM »

Is it truly a jointly held and contributed account?

Yes

What % of the ACB was purchased by you versus your spouse? You may be able to claim a higher percentage here, if many of the investments were purchased with your funds/earnings

Good question...but our paycheques are effectively the same.  So, 50%.


Can I ask why you have a joint brokerage account? Is it just a trust (legal trust, that is) reason? 

Mainly for estate planning.  The fact that we each contribute 50% helps with the simplicity.  However, as we plan for ER, it is likely that my spouse will retire at least a year before me.  At that time I will continue to contribute.  I suppose that could potentially complicate things or does it really matter much? 

When did you incur these losses?

Just a few years ago...

Have you had any gains in the past 7 years? If so, you can file a T1-ADJ and apply these capital losses backwards.

Yes, have carried back.

The good news is that you have 20 years from the year of the loss to carryforward, so they are usable eventually....

From a usability perspective - it's easier if held in your account solely for gains, but it seems like you've changed to joint holdings for a reason.


This is what I figure, and am not too worried in the end...The triggered capital gains have been pretty minor on purpose.  However, at some stage in the future we will probably realise a larger cap gain.  Is there a way to plan for this now, or will only 1/2 the capital gain be put up against a carryforward loss?  Of course, if the capital gain is large enough the loss will be used up!  :-)

Thanks!
Ottawa

Hey Ottawa,

If you're keen on utilizing the gains sooner, I recommend transferring a portion of your funds to a personal brokerage account - this would be the cleanest way to do so, and ultimately transfer back after the fact.

Remember that for estate planning, the only thing you need to do is have your wife as a joint signatory, to avoid the issues with reaching the funds before probate. Beyond that, there are no estate issues, unless specified in your will.

Good luck!

CPA CB

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #221 on: April 06, 2015, 03:26:53 PM »
Your brokerage records should show what you originally paid for the security. You'll just have to go back in the records to the month or months where you bought the security.

Ersh... Yeah, dollar cost averaged bi-weekly for two years with extra money thrown in whenever I had it.  Mint says 127 buy or reinvested dividend transactions in the non-registered bond fund since May 2012. TD's eDocument online statements only go back to April 2014.   Guess I have some work to do, huh? 

I never would have guessed one rebalance could be such a nightmare.  ...Going to try to do all rebalancing in the tax sheltered accounts from now on. 

Again--you've been great!  Cheers!

Agreed with what Cathy is saying here  - though in simpler terms, what did you pay, and what costs were incurred to purchase? When you sell, the gain is calculated on the 'average' purchase price including costs - and if you trade frequently this can be a logistical nightmare.

Cheers,

CPA CB


drstarter33

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #222 on: April 06, 2015, 03:55:31 PM »
Guys, I have a rather straightforward question!
Can someone recommend an accountancy firm or individual CAs who can advise on UK/Canada tax affairs for a British expat moving to London, Ontario?
Thanks!

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #223 on: April 07, 2015, 03:00:31 PM »
Guys, I have a rather straightforward question!
Can someone recommend an accountancy firm or individual CAs who can advise on UK/Canada tax affairs for a British expat moving to London, Ontario?
Thanks!

Happy to deal with you, if you want to message me directly we can chat about the issues. I've dealt with UK expats in the past, but we can discuss the complexities at this point.

Cheers,

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #224 on: April 12, 2015, 09:54:27 AM »
Am I required to report a bank account's interest income if under $50?

I think yes, but...
Bank doesn't provide slips if less than $50 of interest in account. (I had two accounts.)
Bank won't provide any other documentation unless I drive 500 kms to a branch and pay them $10.
Bank accidentally closed my account, such that I have no online access to last year's statements.
Accountant won't put in the estimate I gave him.

I can insist the accountant enter my best estimate, and I would overestimate to $60 to be safe. Is that the way to go?

Cathy

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #225 on: April 12, 2015, 10:54:06 AM »
You need to report and pay tax on all "income for the year ... from a source inside or outside Canada" within the meaning of s 3 of the Income Tax Act, RSC 1985, c 1, unless otherwise exempted by an exception in the law.

Income tax is computed based on the law, not based on the forms or other documentation you may or may not have received. Let's suppose you earned $10 in interest in 2014. If the bank issued you a form saying you had earned $100,000 in interest, you would not need to pay tax on $100,000. You'd still only need to pay tax on $10. The numbers on the tax slips are, as a general rule, irrelevant to computing your income tax, in the sense that the taxation is based on the income, not the slips. So after you understand that, you know that of course it's irrelevant whether the bank issued you a form for the interest: the taxability of the income will depend on whether that income is taxable under the law, not on whether it appeared on a tax slip. (Obviously a discrepancy between the forms and your return will increase your chance of an audit, so in the case of a significant discrepancy, you would want to be armed with evidence that the forms are wrong.)

As for your actual question, you could try looking at mint.com or something like that, but if you don't know how much interest you were paid and it is small, I would just put an arbitrary value into the tax return and attach a statement explaining that I am unable to determine the correct value, but it's sufficiently small that it does not have a significant effect on the tax owing. There's no legal authority for this procedure but as a practical matter it is unlikely to be challenged by the CRA.

That said, you can probably come up with a better estimate than $60. Prevailing interest rates in Canada are around 1% for online banks and 0.3% for physical banks. You mention driving to a branch so we'll assume the interest rate was 0.3%. Do not have any idea of how much cash was in the account? To get $60 at 0.3% interest, you would have needed $20,000 in the account for the entire year. I'm sure you have some idea of how much cash was in the account and at what point during the year it was closed to allow you to determine a better estimate.

Also, if the account was really closed by the bank without your permission, then I would insist they provide you an annual statement without fee, since the problem is entirely their fault. You don't really need to do this for tax purposes, but if you want the documentation, you shouldn't have to pay $10 when the problem was caused by the bank.
« Last Edit: April 12, 2015, 11:10:48 AM by Cathy »
This post contains only general information on the issues raised by this topic. This post does not provide help tailored to your specific situation. There are many facts that could be relevant to your specific situation and I am not in possession of those facts. If you need help tailored to your specific situation, you should retain an appropriate professional and not rely on this post.

scrubbyfish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #226 on: April 12, 2015, 02:22:12 PM »
...you can probably come up with a better estimate than $60. Prevailing interest rates in Canada are around 1% for online banks and 0.3% for physical banks. You mention driving to a branch so we'll assume the interest rate was 0.3%. Do not have any idea of how much cash was in the account? To get $60 at 0.3% interest, you would have needed $20,000 in the account for the entire year. I'm sure you have some idea of how much cash was in the account and at what point during the year it was closed to allow you to determine a better estimate.

Money moved in and out in big slabs, so I can't do the math on a reasonably consistent figure for the year. I do, though, have 11/12 months of one account printed out from before they accidentally closed it -that's where I got my estimate from- and the bank was willing to tell me over the phone their calculation of total interest for one of the accounts (but not the other). I thought I'd add a few dollars for the missing month. (I use YNAB now, so won't have this problem in future, but I didn't have that for the first several months of 2104.)

Anyway, it seems the short answer is, "Yes, despite what the tax accountant says and the bank rep says, you do indeed need to declare the $50ish dollars." All good. And I like the idea of including a note. I will do that!

MMMdude

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #227 on: April 12, 2015, 04:15:56 PM »
Dumb question

I had capital losses this year and i'm worried i will forget about them in the future.  Will my NOA show how much I have in unclaimed capital losses each year?

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #228 on: April 12, 2015, 05:31:32 PM »
In the paper and an BBN they've mentioned that CRA might start taxing people who are doing too well in their TFSAs.  Do you know what the rules are surrounding this?

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #229 on: April 13, 2015, 03:57:17 PM »
Dumb question

I had capital losses this year and i'm worried i will forget about them in the future.  Will my NOA show how much I have in unclaimed capital losses each year?

Yes it will - Also, if you have a CRA My Account you can look up any carryforward amounts online (very useful).

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #230 on: April 13, 2015, 04:09:51 PM »
In the paper and an BBN they've mentioned that CRA might start taxing people who are doing too well in their TFSAs.  Do you know what the rules are surrounding this?

Hi C-Kat

First off, there are no "rules" here, but the CRA is attempting to apply a notional portion of the Income Tax Act (unfairly, in my opinion). Note this issue hasn't hit the Tax Court of Canada yet - so the jury is still out, so to speak.

It all stems from the difference between "earned income" and "unearned income" in the Act. Earned income being employment income, business income, really any activity where you directly attempt to earn a living (or part thereof) in the activity. This differs from unearned income, i.e. passive income such as dividends and capital gains, where yes - you make money, but it isn't what you do for a living. Then there is money, like gambling winnings, inheritances, etc. which are tax-free (unless you're a professional gambler, for example...)

This is where they're attempting to drive a wedge - if you've been overly successful in your portfolio, how actively are you pursuing gains? Are you trading frequently? Many times a day? The more successful and higher trade volume, this (to the CRA) begins to look like business income... Which is why they're going after the TFSA so aggressively.

So - if you trade very frequently and dedicate significant time to trading your TFSA portfolio, there is a risk they will attempt to convert this into Business Income which is 100% taxable.

As stated, there is currently no jurisprudence in the matter, and I wouldn't expect clarity for at least another year, if not further, as eventually it will trickle up to Court. If you are truly concerned, keep any receipts and statements including trading costs/management fees etc., as one would surmise that if the income is taxable, the expenses are deductible.

Hope this answers the question!


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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #231 on: April 13, 2015, 07:00:08 PM »
In the paper and an BBN they've mentioned that CRA might start taxing people who are doing too well in their TFSAs.  Do you know what the rules are surrounding this?

Hi C-Kat

First off, there are no "rules" here, but the CRA is attempting to apply a notional portion of the Income Tax Act (unfairly, in my opinion). Note this issue hasn't hit the Tax Court of Canada yet - so the jury is still out, so to speak.

It all stems from the difference between "earned income" and "unearned income" in the Act. Earned income being employment income, business income, really any activity where you directly attempt to earn a living (or part thereof) in the activity. This differs from unearned income, i.e. passive income such as dividends and capital gains, where yes - you make money, but it isn't what you do for a living. Then there is money, like gambling winnings, inheritances, etc. which are tax-free (unless you're a professional gambler, for example...)

This is where they're attempting to drive a wedge - if you've been overly successful in your portfolio, how actively are you pursuing gains? Are you trading frequently? Many times a day? The more successful and higher trade volume, this (to the CRA) begins to look like business income... Which is why they're going after the TFSA so aggressively.

So - if you trade very frequently and dedicate significant time to trading your TFSA portfolio, there is a risk they will attempt to convert this into Business Income which is 100% taxable.

As stated, there is currently no jurisprudence in the matter, and I wouldn't expect clarity for at least another year, if not further, as eventually it will trickle up to Court. If you are truly concerned, keep any receipts and statements including trading costs/management fees etc., as one would surmise that if the income is taxable, the expenses are deductible.

Hope this answers the question!

Thanks. I don't trade daily, but I do trade a few times a month. Often its just picking up more shares in an existing position. But I do also buy higher risk investments in my TFSA so if they do well I will sell and buy something else.  I don't think 3 or 4 trades a month would qualify as a business, would it? Especially where I have a day job.

I assume CRA would love large gains in an RRSP, and not be opposed to frequent trading because it means more tax at withdrawl time.

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #232 on: April 14, 2015, 08:16:52 AM »
In the paper and an BBN they've mentioned that CRA might start taxing people who are doing too well in their TFSAs.  Do you know what the rules are surrounding this?

Hi C-Kat

First off, there are no "rules" here, but the CRA is attempting to apply a notional portion of the Income Tax Act (unfairly, in my opinion). Note this issue hasn't hit the Tax Court of Canada yet - so the jury is still out, so to speak.

It all stems from the difference between "earned income" and "unearned income" in the Act. Earned income being employment income, business income, really any activity where you directly attempt to earn a living (or part thereof) in the activity. This differs from unearned income, i.e. passive income such as dividends and capital gains, where yes - you make money, but it isn't what you do for a living. Then there is money, like gambling winnings, inheritances, etc. which are tax-free (unless you're a professional gambler, for example...)

This is where they're attempting to drive a wedge - if you've been overly successful in your portfolio, how actively are you pursuing gains? Are you trading frequently? Many times a day? The more successful and higher trade volume, this (to the CRA) begins to look like business income... Which is why they're going after the TFSA so aggressively.

So - if you trade very frequently and dedicate significant time to trading your TFSA portfolio, there is a risk they will attempt to convert this into Business Income which is 100% taxable.

As stated, there is currently no jurisprudence in the matter, and I wouldn't expect clarity for at least another year, if not further, as eventually it will trickle up to Court. If you are truly concerned, keep any receipts and statements including trading costs/management fees etc., as one would surmise that if the income is taxable, the expenses are deductible.

Hope this answers the question!

Thanks. I don't trade daily, but I do trade a few times a month. Often its just picking up more shares in an existing position. But I do also buy higher risk investments in my TFSA so if they do well I will sell and buy something else.  I don't think 3 or 4 trades a month would qualify as a business, would it? Especially where I have a day job.

I assume CRA would love large gains in an RRSP, and not be opposed to frequent trading because it means more tax at withdrawl time.

Correct - sounds like you're fine.

They don't attack the RRSP at all because it is all earned income on withdrawal. You're spot on there.

Cheers.

lostamonkey

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #233 on: April 21, 2015, 06:05:50 PM »
I have a few question about today's budget:
-The TFSA increase aparently begins in 2015. Does this means that those of us who have already maxed out our TFSAs can add another $4,500 tommorow?
-I read that the small business tax rate will decrease to 9% by 2019. Will this be in increments? What will the small business rate be in 2016?
-Since the small business tax rate is decreasing, will the tax rates on ordinary dividends change? If not, won't integration no longer apply?

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #234 on: April 21, 2015, 06:25:24 PM »
I have a few question about today's budget:
-The TFSA increase aparently begins in 2015. Does this means that those of us who have already maxed out our TFSAs can add another $4,500 tommorow?
-I read that the small business tax rate will decrease to 9% by 2019. Will this be in increments? What will the small business rate be in 2016?
-Since the small business tax rate is decreasing, will the tax rates on ordinary dividends change? If not, won't integration no longer apply?

From what's being said at reddit's PersonalFinanceCanada sub, you can contribute the $4.5k now. CRA 'respects' the budget until it *fails*, which means voted down, which won't happen because there is a Con majority.

It is retroactive to Jan 1st.
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scrubbyfish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #235 on: April 21, 2015, 06:36:39 PM »
1. Is the tax rate for Corporations graduated, like the one for personal? Or is it a flat rate, and applicable to even the first dollar?

2. I know there is free, CRA-approved software for submitting personal tax returns. Is there also this for Corporations? (I'm getting ready for next year!) What about for a Trust?

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #236 on: April 22, 2015, 05:22:19 AM »
My Dad bought bbd.b shares (employer match) over almost 10 years

These shares are in a taxable account, DRIP was in place. He never tracked anything (read ACB here). From 1996 to 2003 (where most purchases occured), bbd.b average price was at least 10$. Today, it’s 2.66$ and he wants to sell to harvest the lost and offset a big capital gain from a plot of land sale.

Could he sell all of his bbd.b and wait for the slips to come in to do his taxes next year? Why he should try to get the ACB by himself? Do I miss something here?
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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #237 on: April 22, 2015, 11:39:06 AM »
I have a few question about today's budget:
-The TFSA increase aparently begins in 2015. Does this means that those of us who have already maxed out our TFSAs can add another $4,500 tommorow?
-I read that the small business tax rate will decrease to 9% by 2019. Will this be in increments? What will the small business rate be in 2016?
-Since the small business tax rate is decreasing, will the tax rates on ordinary dividends change? If not, won't integration no longer apply?

From what's being said at reddit's PersonalFinanceCanada sub, you can contribute the $4.5k now. CRA 'respects' the budget until it *fails*, which means voted down, which won't happen because there is a Con majority.

It is retroactive to Jan 1st.

That's correct - It's $10,000 for the years 2015 and beyond.

Decrease to the Small Business Tax Rate and Corresponding Adjustment to Gross-Up and Dividend Tax Credit Rates

Budget 2015 proposes a 2 percentage point decrease in the small business tax rate from 11 per cent in 2015 to 9 per cent in 2019.  The reduction will be implemented as follows:
•10.5 per cent effective January 1, 2016
•10 per cent effective January 1, 2017
•9.5 per cent effective January 1, 2018
•9 per cent effective January 1, 2019

 

In conjunction with such reductions, Budget 2015 also proposes to adjust the gross-up factor and dividend tax credit rate applicable to non-eligible dividends (basically, dividends sourced from corporate income that is taxed at the small business rate).  The gross-up percentage will be decreased from 18 per cent in 2015 to 17 per cent in 2016 and 2017, 16 per cent in 2018 and 15 per cent in 2019 and thereafter. The corresponding dividend tax credit rate will be changed from 13/18 of the gross-up amount to 21/29 effective January 1, 2016, 20/29 effective January 1, 2017 and 9/13 of such amount effective January 1, 2019. The budget indicates that such adjustments are necessary in order to maintain (or at least attempt to achieve) the integration of the corporate and personal tax systems. However, there will not be appropriate integration for non-eligible dividends paid after 2015 from retained earnings that arose in previous taxation years...

Hopefully this helps to address some of your questions here - a you see, the reduction is graduated over the next few years, and the dividend gross-up and credits are being adjusted to try and keep integration intact.


CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #238 on: April 22, 2015, 11:44:22 AM »
1. Is the tax rate for Corporations graduated, like the one for personal? Or is it a flat rate, and applicable to even the first dollar?

2. I know there is free, CRA-approved software for submitting personal tax returns. Is there also this for Corporations? (I'm getting ready for next year!) What about for a Trust?

Hi SF -

It is a flat rate - applicable to each dollar of PROFIT (not revenue) so in this regard it is somewhat different than personal taxes.

As far as free software - I'm not aware of any in terms of Corporate and Trust Returns. The level of diligence required for T2 (Corp) and T3 (Trust) returns is far higher than that of a personal return, and as such I would be surprised if there was a free package available.

There is a pay as you go software available - "Profile" by Intuit, which is reasonable for single returns... However, as I'm stating above, given the level of diligence required I would very much recommend you retain a professional in these matters to ensure your returns are filed appropriately.

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #239 on: April 22, 2015, 11:50:56 AM »
My Dad bought bbd.b shares (employer match) over almost 10 years

These shares are in a taxable account, DRIP was in place. He never tracked anything (read ACB here). From 1996 to 2003 (where most purchases occured), bbd.b average price was at least 10$. Today, it’s 2.66$ and he wants to sell to harvest the lost and offset a big capital gain from a plot of land sale.

Could he sell all of his bbd.b and wait for the slips to come in to do his taxes next year? Why he should try to get the ACB by himself? Do I miss something here?

Hi there -

He needs to calculate the ACB by himself, or if his investment brokerage account has a carried amount this will likely do. Make sure any transaction fees and carrying costs have been included as well. For many (read - most) brokerage accounts, they don't file slips for capital gains/losses and the burden of reporting falls on the taxpayer. He'll need to get this information together for next year's return if he chooses to sell. I assume the matching value of shares were reported as income in the years 1996-2003?

Just as a red flag - he'll want to look at the whole picture here, and by that I mean the use of the principal residence exemption.

It seems, based on what you've said, this exemption is available to this property. If so, you want to claim AT LEAST 1 year of the exemption (as this will shield two years of ownership). The loss of the year has no impact on the use for his house (as you get the number of years claimed plus one) as the exempted amount.

Calculate the yearly capital gain of this property and his house to determine which is better to use the exemption on for the remaining years.


CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #240 on: April 22, 2015, 11:56:44 AM »
Funny question for you:

I'm part of Ontario's MicroFIT program where we sell what we generate from our solar panels to Ontario Hydro and they pay us for the power and HST.  They screwed up our HST payments last year and paid us a fraction of the amount we should have received.  I caught it this month and have made them pay back the missing money.

For my taxes for 2014 do I report the HST that they paid us, or the HST that they owed us (and paid back in 2015)?

I responded to a similar question in the American context yesterday: http://forum.mrmoneymustache.com/ask-a-mustachian/question-for-tax-peoples-2015-income-attributable-to-2014/msg578159/#msg578159

Obviously, this thread is Canadian, but the American principles are similar so you may want to read that post first.

The first question is: what accounting method do you use for income from this project?

If you use the cash method of accounting, then the question becomes: when did you receive the income?

Receipt of income is not necessarily when you can spend the cash; it can be earlier. In Canada, this topic is not explicitly addressed in any legislative instrument, but it's often referred to in the court cases. I can't find an appellate citation at the moment, but in Mintzer v. Canada, [1998] TCJ No 325, a judge of the Tax Court says, "Certain dictionary definitions of 'receive' or 'receipt' might leave one with the impression that something is not received unless it is actually taken into one's hands or possession. However the case law is clear that an amount may be included in income even where it is only notionally or constructively received". Unfortunately, that case is not available on CanLII (I read it through LexisNexis), so I can't provide a link.

If you were using the cash method of accounting, it would come down to whether you received the income in 2014 or in 2015, keeping in mind that the legal definition of "received" may be different from your intuition.

However, in your case, things may be simpler, because the CRA guidance says that you should use the accrual method of accounting for income received from the Ontario MicroFIT program. As explained by the CRA, "Generally, the Participant should report income using the accrual method of accounting. With this method, the Participant will report the income in the taxation year that the amount is earned under the Contract, regardless of when the amount is received."

If this is your first year dealing with this program, you can use the accrual method as the CRA says and then the issue is very simple. If it's not your first year, then you need to remain consistent with the same accounting method, so then the issue of when you "received" the income may come into play if you were using the cash method before.

I wish I had caught this earlier - but alas I will do so now.

Contrary to Cathy's response here - these issues are not one and the same: When you say, they screwed up the HST payments, I assume this means purely HST, and not income taxes (as HST is not income, in any way shape or form).

Given this is the case - it depends on how you filed your HST returns with the CRA - did you already report this HST as received? If so, you've paid up the correct amount. If this missing HST has not yet been reported, you can either file amendments for the given periods, or just include the amount on your next HST return and remit this to CRA accordingly.


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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #241 on: April 22, 2015, 02:40:48 PM »
A Quick Budget Overview

Hi All -

Alright alright alright - after some prodding, please find my MMM birds-eye overview of the 2015 budget.

Just as a quick briefing, the 2015 budget is now released, which means your friendly neighbourhood tax accountants are scurrying around trying to make heads from tails, a mere week before the end of the 2014 tax season! As such. this is an abridged version, but hopefully I cover most of everyone's concerns...

If you're looking for commentary on synthetic equity dividends and subsection 55(2) capital gains stripping rules (I'm assuming Le Barbu, since you love asking technical questions here...haha) - you've come to the wrong place!

As such, here is a very quick overview of the budget - I've taken the liberty to include non-political satirical remarks to make this subject a bit more interesting.

First and foremost - It's balanced! Finally. Well, sort of... Apparently we took some money out of an emergency fund, and sold some GM shares. Let's just say it's close enough.

TFSA's - starting in 2015, the room is up to $10,000 per annum. This is an increase of $4,500 per year, however... The room will not be inflation indexed going forward.

Author's Note - Please. Please! Recognize that Tax Free Savings Account does not mean the money has to be in a Savings Account at the bank. This is a Tax Free Investment Account (bank lobbies be damned) so treat this accordingly, and make more than the currently offered whopping 1.05% interest rate offered at Tangerine.

Small Business (i.e. Corporations with under $500,000 profit per annum) - Expect your taxes to fall over the next few years. As posted earlier, the CCPC rate is dropping from 11% to 9% between now and the 2019 fiscal year for Federal taxes. This should mean a fair bit of savings for Entrepreneurs far and wide.

Manufacturing - If you happen to be in manufacturing, good news, you're getting a handout! A new rate of 50% depreciation on certain capital assets acquired between 2015 and 2026 will now be available... However, given how many manufacturers in Ontario are going belly-up, one wonders who will be using this one.

Home Accessibility Tax Credit - $10,000 tax credit (15% thereof) to improve accessibility of homes for "seniors" (65 and up) who are eligible for the disability tax credit. Not 65 and disabled but helping a loved one? Good news - you can claim this credit on your return (if you're paying for it) if you're a spouse, parent, grandparent, niece, nephew, or other qualifying individual. This is a maximum of $10,000 per residence, so if you're paying for upgrades to your parents' home, it's a maximum of $10,000 (assuming they're married and cohabiting.)

Lifetime Capital Gains Exemption for Farmers - Increase from $813,600 in capital gains to $1,000,000 on qualified farm or fishing properties. This is, give or take, a savings of about $25,000-$45,000 for our farmers and fishermen. If you were thinking of becoming a farmer, or selling your farm - this may help!

Donations and your Estate - The 2015 Budget now allows you to exempt gains on donations of cash from the sale of private company shares or real estate, if the proceeds are donated within 30 days of closing. This goes further than previous budgets, and does not extend to public companies at the moment, but it's a step in the right direction.

Universal Child Care Benefit - Those with little 'staches will rejoice at receiving an additional $60 per month, per child under the age of 6. You'll also get an additional $1,000 increase in room to claim childcare expenses.

Teenager stealing your booze and racking up your cell-phone bill? Good news - you'll now be entitled to $60 per month for children from ages 6 to 17. That should cover the unlimited data plan and some make your own brew... Right?

There are other more technical issues - but this will likely cover most of what you're looking for.

Overall

Much of this is information we've all known for some time, but are now a reality in black and white. Is it a game changer? Not particularly, but much of this is a step towards saving taxes for those prudent enough to take advantage.

The only game changer, and this will be interesting, is the impact of the TFSA on the once firmly held ground of the RRSP. With $10,000 per year in room going forward, this is very likely to become the investment vehicle of choice, especially since withdrawals are NOT INCOME. This means you can withdraw from the TFSA, and these funds will not have any affect on those pesky OAS and CPP claw-back rates.

Hope everyone has a happy and healthy 2015 - and can take advantage of these savings both now and going forward.

CPA CB


« Last Edit: April 22, 2015, 03:04:28 PM by CPA CB »

scrubbyfish

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #242 on: April 22, 2015, 05:25:50 PM »
It is a flat rate - applicable to each dollar of PROFIT (not revenue) so in this regard it is somewhat different than personal taxes.

As far as free software - I'm not aware of any in terms of Corporate and Trust Returns. The level of diligence required for T2 (Corp) and T3 (Trust) returns is far higher than that of a personal return, and as such I would be surprised if there was a free package available.

There is a pay as you go software available - "Profile" by Intuit, which is reasonable for single returns... However, as I'm stating above, given the level of diligence required I would very much recommend you retain a professional in these matters to ensure your returns are filed appropriately.

Thank you very much, CPA CB. With the time of year, I didn't think we'd be hearing from you for some time yet!

I thought the feedback might indeed be to go with a tax accountant for the Corp and Trust returns. Thanks.

My Corporate return (still recovering from massive losses two years ago) showed $11,000 taxable, $0 owing. I'm sure this is because of loss carry-forwards of way more than $11,000 but was confused to see only the $11,000 and $0 display on the "owing" page, rather than the "taxable minus losses = $0". Is that how it normally displays? (The application of the loss carry-forward is clearly shown in other pages.)

RetiredAt63

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #243 on: April 22, 2015, 05:45:44 PM »
Question for all these tax-smart people, especially CPA CB.  I asked in another thread whether it is more advantageous to invest or pay down mortgage, given that my mortgage interest is an investment expense.  That thread has sunk like the proverbial stone, lots of views, but not much discussion.  Anyone here care to take a look and comment?  Or maybe it is so obvious that no-one has bothered to add in anything.  ;-(  If it is the obvious thing to do, it would be nice to hear a few people say they think my reasoning is sound.
http://forum.mrmoneymustache.com/ask-a-mustachian/costbenefit-analysis-of-not-paying-down-my-mortgage-%28canada%29/.
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http://forum.mrmoneymustache.com/meetups-and-social-events/ontario's-own-camp-mustache-2017/ - MEET US THERE!

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #244 on: April 23, 2015, 09:09:30 AM »
It is a flat rate - applicable to each dollar of PROFIT (not revenue) so in this regard it is somewhat different than personal taxes.

As far as free software - I'm not aware of any in terms of Corporate and Trust Returns. The level of diligence required for T2 (Corp) and T3 (Trust) returns is far higher than that of a personal return, and as such I would be surprised if there was a free package available.

There is a pay as you go software available - "Profile" by Intuit, which is reasonable for single returns... However, as I'm stating above, given the level of diligence required I would very much recommend you retain a professional in these matters to ensure your returns are filed appropriately.

Thank you very much, CPA CB. With the time of year, I didn't think we'd be hearing from you for some time yet!

I thought the feedback might indeed be to go with a tax accountant for the Corp and Trust returns. Thanks.

My Corporate return (still recovering from massive losses two years ago) showed $11,000 taxable, $0 owing. I'm sure this is because of loss carry-forwards of way more than $11,000 but was confused to see only the $11,000 and $0 display on the "owing" page, rather than the "taxable minus losses = $0". Is that how it normally displays? (The application of the loss carry-forward is clearly shown in other pages.)

Yes, it is!

CPA CB

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #245 on: April 23, 2015, 09:34:12 AM »
Question for all these tax-smart people, especially CPA CB.  I asked in another thread whether it is more advantageous to invest or pay down mortgage, given that my mortgage interest is an investment expense.  That thread has sunk like the proverbial stone, lots of views, but not much discussion.  Anyone here care to take a look and comment?  Or maybe it is so obvious that no-one has bothered to add in anything.  ;-(  If it is the obvious thing to do, it would be nice to hear a few people say they think my reasoning is sound.
http://forum.mrmoneymustache.com/ask-a-mustachian/costbenefit-analysis-of-not-paying-down-my-mortgage-%28canada%29/.

Hi Retired,

This is a multi-faceted question, and one which raises a few additional questions... It isn't technically a tax one, but I'll just throw some thoughts out here to help.

First and foremost - you aren't giving concrete figures here. From what I gather you're in a 15% marginal tax rate ($150 savings per $1,000) is this something you expect to continue into retirement? If you're paying $12k per year, and gaining 9K equity, one would assume you're saving about $450 per year with this strategy?

Risk and Rewards - At 63, you've got plenty of years ahead of you, but in terms of compounding income for the future, the years are much more limited than if you were, say, 40. At a 3.65% rate of interest on your mortgage (call it 3% after savings on taxes) - after inflation you need to clear about 5-6% per annum to break even. This isn't to say it's impossible, or even that challenging to beat - but it's a consideration nonetheless. Are you liquid enough to wait out a timing issue (i.e. you need money now, but your portfolio just dumped 10% of its value?)

Future Plans - You're somewhat newly divorced, and luckily from what I can tell you've escaped relatively in tact in terms of financial consequences. What are the rough plans now and into the future? Is this girlfriend a serious relationship? Are you looking to settle down with someone younger? Same age? Earning potential plays a role here - but someone a bit younger and still working will provide security on the home in terms of income. Not to make relationships about money - but it seems like 30% of the threads here are about relationships and money, so may as well start to address expectations in your head for your future plan.

Last but not least - How much is left on the house? How quickly can you pay off the mortgage with the matrimonial funds dumped into investments to grow? Ultimately, if you can treat these investments as a nest egg, but if find part-time fun work that keeps your flexibility and helps to pay down the mortgage end of things in the meantime, this may be your best option.

Contrary to what you've said, this is neither an obvious or easy decision to make. The fact that you've retired, are recently divorced, amongst other things - complicates the decision further. Sinking the money into the mortgage is theoretically less risky (fewer unknowns) but you can help to mitigate this risk quite easily by finding something to do, part time, that is fun, and pays. Maybe it's walking the neighbour's dog, or refinishing antique watches, or woodworking - who knows! You've retired, if you can find a way to monetize your hobby, this will help!

Good luck, I haven't really answered this question but hopefully have provided some points to think about.

Cheers,

CPA CB








RetiredAt63

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #246 on: April 23, 2015, 01:30:29 PM »
Quote from: CPA CB link=topic=25093.msg637827#msg637827
[i
Hi Retired,[/i]

This is a multi-faceted question, and one which raises a few additional questions... It isn't technically a tax one, but I'll just throw some thoughts out here to help.

First and foremost - you aren't giving concrete figures here. From what I gather you're in a 15% marginal tax rate ($150 savings per $1,000) is this something you expect to continue into retirement? If you're paying $12k per year, and gaining 9K equity, one would assume you're saving about $450 per year with this strategy?

I am at the higher end of the federal "$44,701 up to $89,401" income category.

Risk and Rewards - At 63, you've got plenty of years ahead of you, but in terms of compounding income for the future, the years are much more limited than if you were, say, 40. At a 3.65% rate of interest on your mortgage (call it 3% after savings on taxes) - after inflation you need to clear about 5-6% per annum to break even. This isn't to say it's impossible, or even that challenging to beat - but it's a consideration nonetheless. Are you liquid enough to wait out a timing issue (i.e. you need money now, but your portfolio just dumped 10% of its value?)

Pension, RRIF, CPP and investment income are fine, no immediate need for big chunks of money, or need to get out of mortgage debt.  Now that the lawyers are paid for, I am actually in the position of having more money coming in than my regular life expenses need.  This is good since I have house projects that will soak up some of that money, that have been deferred for a few years.  But I am not having to liquidate any investments, and don't expect to need to for quite some time.
 
Future Plans - You're somewhat newly divorced, and luckily from what I can tell you've escaped relatively in tact in terms of financial consequences. What are the rough plans now and into the future? Is this girlfriend a serious relationship? Are you looking to settle down with someone younger? Same age? Earning potential plays a role here - but someone a bit younger and still working will provide security on the home in terms of income. Not to make relationships about money - but it seems like 30% of the threads here are about relationships and money, so may as well start to address expectations in your head for your future plan.

Oh, the "girlfriend" is a friend, not a relationship.  I am hetero female. The number of single, available men anything close to my age and interests in this small rural area is effectively zero, so no romantic prospects are in sight.

Last but not least - How much is left on the house? How quickly can you pay off the mortgage with the matrimonial funds dumped into investments to grow? Ultimately, if you can treat these investments as a nest egg, but if find part-time fun work that keeps your flexibility and helps to pay down the mortgage end of things in the meantime, this may be your best option.

Roughly $150,000 on the house, might realise $100,000 - $120,000 on the sale of the matrimonial home after all obligations are paid.  There are projects on this house that have been waiting, plus I have nothing in TFSAs and I would like to maximize those.  So realistically $50,000 to $60,000 available for the mortgage.  Right now the projected finish is 18 years away, but with the open mortgage I can easily shorten that even without putting the lump sum on it.

Contrary to what you've said, this is neither an obvious or easy decision to make. The fact that you've retired, are recently divorced, amongst other things - complicates the decision further. Sinking the money into the mortgage is theoretically less risky (fewer unknowns) but you can help to mitigate this risk quite easily by finding something to do, part time, that is fun, and pays. Maybe it's walking the neighbour's dog, or refinishing antique watches, or woodworking - who knows! You've retired, if you can find a way to monetize your hobby, this will help!

My basic plan is to never work for money again - partly because I did not do an early retirement (I am on this forum for the lifestyle, not the early retirement), partly because jobs are few and far between in this area and we lose too many young people because of that, and partly because I am super busy with all the things in the community that are done by volunteers.

Good luck, I haven't really answered this question but hopefully have provided some points to think about.

Yes, you did, thank you, and I'm glad you think that it isn't that simplistic.  I hope the added information here will give you and others the appropriate information for analysis.   For the last 5+ years it has been an effort to keep afloat financially.  I came out of the divorce financially OK, but I did definitely take a hit.  Now I can actually do some planning (or at least I can once the matrimonial home sells).  Given that my family history means I can easily make it to 90+, I do need to plan long-term as much as is possible. 
The measure of civilization is how people treat one another.

http://forum.mrmoneymustache.com/meetups-and-social-events/ontario's-own-camp-mustache-2017/ - MEET US THERE!

danzabar

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #247 on: April 24, 2015, 08:36:20 AM »
First of all thanks for all your great information!
I have a simple question for you,
my wife has a defined benefit pension but has 8500 in rrsp room. I have all of my savings in an rrsp at the moment. She has a higher income than I do and I would like to have her contribute to a spousal rrsp to claim the deduction and to try and even out our retirement incomes. What I'm finding confusing is 'how to actually do this'.
We share a bank account and every two weeks I invest in my e-series rrsp from our shared account. Would we continue to invest in the same way to add the extra 8500 and then when we submit our taxes next year, she claims 8500 of the deposit as a spousal rrsp? Or does a new rrsp need to be setup...
Many thanks!

Cowtown2011

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #248 on: April 24, 2015, 08:49:21 AM »
I've got a couple questions.

I'm looking make an investment through www.slicedinvesting.com, a new service which allows investors to invest in Hedge Funds. Due to the structure, I have a couple tax related questions:

  - Likely any distributions from the fund would be subjest to withholding taxes, can the withholding be included in my tax return and thus reduce the chance of double taxation?
  - Would any distributed capital gains also be subject to withholding taxes?
  - Does an investor need to remit these taxes on their own?
  - Any other US tax reporting requirements become required under this type of setup?

I believe I would be consider a limited partner of any investment made.

Appreciate any help before I commit any capital.

Everyone should checkout their platform. Great setup and allows average joe investors to access investments which are not correlated to equity markets in most instances.
Learn more about our FIRE journey. www.thepermanentweekend.com

c-kat

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Re: Can"EH"dian Tax - You have questions, I have answers
« Reply #249 on: April 25, 2015, 06:50:52 PM »
Hello and thank you so much for answering my questions. I have one more that I'd like to ask, concerning retirement tax planning.

I'm trying to decide whether my DH and I should be contributing to RRSPS or TFSAs.  We both have RRSPs but because I will have a pension I stopped contributing to my RRSP and switched to a TFSA. I know pension income can be split between spouses but what about RRSP income?

Our details are as follows. At age 55 we plan to retire. I will receive a pension of $60,000 in today's dollars. My husband's work retirement plan is an RRSP with a company match, which projections show will be worth $700,000 at that time. We would withdraw 4% per year.

Ten years after we retire, we will get CPP and my pension will be clawed back somewhat.  At 67 we will get OAS.

How would we be taxed on this combo?  We both have additional RRSPs and TFSAs outside of this and are wondering which we should max out first? It is nice to get tax back on RRSP contributions, but I'm starting to think TFSAs would be better for retirement, so that we wouldn't end up in a higher tax bracket.

Thanks!