Once again, it’s year-end tax planning time …

Before we start to celebrate another festive season, let’s review some essential planning items and act now to make sure we save on 2017 tax dollars.

  • Make sure you’ve paid these bills before the year-end for this year’s tax benefits/credits –
    medical and dental expenses;
    child care expenses;
    spousal support payment;
    political donations;
    charitable donations;
    tuition fees (there are new rules in 2017 extending eligibility for occupational skills courses);
    interest and vestment counsel fees;
    monthly transit pass costs for January to June, 2017 (this credit is no longer available after June 30, 2017).
  • Harvesting tax losses.   Consider selling unwanted investment losers in your non registered portfolios to use as offsets to your capital gains.   Any unused losses for the current tax year can also be carried back three years and forward indefinitely.  The last stock trading date for settlement of securities this year is December 27, 2017, for both Canadian and US exchange securities.
  • Good to hold off buying any mutual funds until the new year.   This will avoid any possible surprising and unanticipated income distribution even if you owned the funds for a month or less.
  • For self employed taxpayers, consider
    – making your intended capital item purchases (such as an automobile) before the business’ year-end to maximize your capital cost allowance.  You are entitled to claim half of the maximum business deductions for the year even though you actually only owned the item(s) for as few as one day!
    – consider paying adult family members a reasonable amount on work they’ve performed for the business for income splitting purpose. It is especially important if you have an incorporated business as the government is looking to changing the tax rules in 2018;
    – if you have discretion over the timing and amount of receipt of non-eligible dividend income, consider receiving them this year rather than later.  Tax rates are increasing.   Although other consideration like tax deferral benefits must also be taken into account.
  • This is the time to see if it makes sense to contribute to your RRSP or spousal RRSP for the current year.   You probably know how much income you’ve earned for the year, and whether a contribution will benefit you in tax savings.
  • Adjust your 4th quarter tax instalment to compensate for possible 2017 over or under payment.
  • It’s always wise to contribute to your TFSA if there’s excess cash for savings and investments.   Doing so in your TFSA will help you avoid taxation on any investment income generated from those contributions.

Upcoming deadlines –
2017 personal tax filing – April 30, 2018
2017 personal tax filing with selfemployment reporting – June 15, 2018
RRSP contribution deadline for 2017 – March 01, 2018

 

 

Short term rentals – mortgage helper traps and tips

Air bnb and other online short-term rentals are popping up everywhere.   Renting out your home or part of your home from time to time is a great way to bring in extra income.

But before you do, consider the following potential traps:

  1. Does your home’s municipal zoning allows you to sell short term rentals?  Does it require you to apply for a licence?
  2. Have you taken out extra property and liability coverage for this type of rental with your home insurance?   If not, you will likely null and void your policy with these rentals and ultimately defeat the purpose of having home insurance.
  3. If you live in a condo complex, have you checked with your strata?
  4. Consider the tax liability of rental income generated.  Short term rentals are considered business ventures, as such must be reported on your annual income tax return.  Have you planned for this tax expense?
  5. Consider potential tax implication with Canada Revenue Agency’s ‘change in use’ rule on your principal residence exemptions.   The rules have changed and you may incur additional capital gains tax now, or when you sell your home in the future.

Tips to counter these potential traps:

A. To avoid running afoul of government licensing requirements, fully understand zoning laws and abide by their requirements.

B. Speak with your insurance broker/agent about the potential change BEFORE you start your rentals.   It is not difficult for insurance companies to check if you’re violating the policy rules.  Your online ads are date stamped identifying when you’ve actually started making your home available for rentals.

C. To avoid penalties and levies from your strata, abide by its rules.

D. Speak with a tax accountant or lawyer BEFORE you start your rentals.   Understand fully the tax implications of your rental business and decide if this is still a venture worth your while to embark on.

Rental rules are complex and not as simple as just sharing your home in exchange for money.   A mortgage helper is nice but make sure you go in fully prepared and with your eyes wide open.

 

 

Home Accessibility Tax Credit

The Home Accessibility Tax Credit is a non-refundable federal tax credit of 15%, for expenditures made to a maximum of $10,000 on home renovations made to an eligible dwelling that improve accessibility, mobility or security for a senior or a person with disabilities.

Do keep all supporting documents and receipts as Canada Revenue Agency may ask for review to validate amount claimed.   Details of the tax credit and its eligibility click here.

It appears the same expenditures may also qualify as medical expenses if they qualify.

And for BC residents … you’ll probably also benefit from the provincial Home Renovations Tax Credit of 10% for the same expenditures, as mentioned in my earlier blog from November, 2016.

Truly a rare occurrence on spending where you may potentially have a triple win from the taxman!

TFSA accumulated savings – an update

Here’s an update of my post from January 2015 on TFSA (Tax Free Savings Account) accumulation.
Since 2009, one can contribute to a TFSA and any investment income earned is tax free.

Assuming a 4% annual return, and the maximum is contributed each year at the beginning of each year, one can expect to have almost $63,000 by the end of 2017!   The magic of compounding and accumulation.

 

Year Maximum allowed Year-start balance Contribution on Jan 1st Interest    rate Interest earned Year-end balance saved
2009 5,000.00 0.00 5,000.00 4.0% 200.00 5,200.00
2010 5,000.00 5,200.00 5,000.00 4.0% 408.00 10,608.00
2011 5,000.00 10,608.00 5,000.00 4.0% 624.32 16,232.32
2012 5,000.00 16,232.32 5,000.00 4.0% 849.29 22,081.61
2013 5,500.00 22,081.61 5,500.00 4.0% 1,103.26 28,684.88
2014 5,500.00 28,684.88 5,500.00 4.0% 1,367.40 35,552.27
2015 10,000.00 35,552.27 10,000.00 4.0% 1,822.09 47,374.36
2016 5,500.00 47,374.36 5,500.00 4.0% 2,114.97 54,989.34
2017 5,500.00 54,989.34 5,500.00 4.0% 2,419.57 62,908.91

CPABC’s RRSP tips for 2016 tax year

As a public service, CPABC is providing resources to assist individuals and businesses prepare their income tax returns, invest in RRSPs, and plan their finances. CPABC’s RRSP and tax tips for the 2016 tax year include important information pertaining to income, deductions, and tax credits.

Here’s the link on everything RRSP: www.rrspandtaxtips.com

contribute to SPP

spplogo

Yes you can, contribute to a SPP with your RRSP room!

Did you know that you can contribute to a Saskatchewan Pension Plan (SPP) even if you don’t live in Saskatchewan?   Yes (Canadian) folks, this is absolutely true.

Why SPP?

I like this plan because:
1)  it is easy to join;
2)  it is easy to contribute –
– annual maximum contribution is $2,500, which you can opt for monthly contributions using your credit card, and
– an annual additional transfer-in from an existing RRSP of up to $10,000;
3)  their management expense at .96% for their balanced fund is decent and lower than most managed mutual funds;
4)  their balanced fund return is decent.   Average return over the 30-year period since inception is 8.1%, with a respectable 5-year average of 7.6%.  Check out the full history here.   (Of course, you need to keep in mind that these rates are not guaranteed going forward.   They just show the plan’s past performance in investment returns.)

So give the SPP some serious consideration, especially if you are considering long term retirement investing.

And happy 2017 planning!

It’s time for a year-end tax planning check-up

It’s amazing how time flies, but we’re almost near the end of another year.   And before we start to celebrate another festive season, let’s review some essential planning items and act now for some additional tax saving for 2016.

  • Harvesting tax losses.   Consider selling investment losers in your non registered portfolios to use as offsets to your capital gains.   Any unused losses for the current tax year can also be carried back three years and forward indefinitely.
  • Good to hold off buying any mutual funds until the new year.   This will avoid any possible surprising and unanticipated income distribution even if you owned the funds for a month or less.
  • Pay these bills before the year-end for 2016 tax benefits/credits –
    medical and dental expenses;
    child care expenses;
    spousal support payment;
    political donations;
    charitable donations;
    investment counsel fees.
  • For self employed taxpayers, consider making your intended capital item purchases (such as an automobile) before year-end to maximize your 2016 capital cost allowance.  You are entitled to claim the maximum business deductions for the year even though you actually only owned the item(s) for a month or less.
  • This is the time to see if it makes sense to contribute to your RRSP for the current year.   You probably know how much income you’ve earned for 2016, and whether a contribution will benefit you in tax savings for the year.
  • Adjust your 4th quarter tax instalment to compensate for possible 2016 over or under payment.
  • It’s always wise to contribute to your TFSA if there’s excess cash for savings and investments.   Doing so in your TFSA will help you avoid taxation on any investment income generated from those contributions.
  • The Home Renovations Tax Credit for seniors and persons with disabilities is still available for eligible individuals.   It’s worth 10% of eligible renovation costs to a maximum of $1,000 in tax credit.    All documentation must be available on request to support the claim.  Details available on the BC Government website.  (* please also see my blog of 2017/02/26 for the Feds’ version of this tax credit.)

And new in the CRA pipeline –

  • Disposition of your Principal Residence – new reporting rules for 2016 and beyond.   Individuals must now report their principal residence disposition occurring in the year.  CRA has published new guidance on its website for compliance and essential reporting.

Deadlines –

  • 2016 personal tax filing – May 1, 2017
  • 2016 personal tax filing with self employment reporting – June 15, 2017
  • RRSP contribution deadline for 2016 – February 28, 2017

 

CRA says – be wary of scammers!

CPABC says:

“Highly skilled scammers are impersonating the Canada Revenue Agency (CRA) through telephone calls, mail, text messages, and emails.  If you want to confirm the authenticity of any CRA communication, call your local CRA office.  For information on scams or to report deceptive telemarketing, contact the Canadian Anti-Fraud Centre (CAFC) online or call 1-888-495-8501.”

Canadian Tax Myths and Tips

Canadian tax filings can be daunting.   Here are a few articles to help you through the process this season that I think is worth your read.  The first two from CBC News and the 3rd from a recent blog post from the Women’s Financial Learning Centre. –

  1. www.cbc.ca/news/business/taxes/10-tax-filing-myths-that-could-cost-you-money-1.1266240
  2. www.cbc.ca/news/business/taxes/tax-season-2015-10-ways-to-attract-a-cra-auditor-s-attention-1.2969196
  3. www.womensfinanciallearning.ca/2016/03/09/5-tax-filing-tips-to-save-you-time-and-money/#more-1802

 

 

It’s RRSP Time Again!

ReviewYrInvests (640x471)

Needless to say, it’s that time of the year again when some of us are scrounging for money and time to invest to our Registered Retirement Savings Plan (RRSP).

If you’re a procrastinator and haven’t got around to contributing yet, here are a few things to keep in mind.

• Deadline for this year is 11:59pm Monday, February 29, 2016.

• If you have high income in 2015 and projected low income for 2016, you may want to use RRSP contributions (2015)/withdrawals (2016) to equalize your income of both years to save on the overall income taxes for the combined two years.

• Contribute to a spousal RRSP if you’re the high income earner in the household. This will enable you the tax deductions and equalize both your retirement income down the road on retirement.

• If you have no or low income in 2015, you probably want to skip the contribution altogether for this year. This is especially applicable if you anticipate higher income years in the near future which can benefit more from your contributions then.

• Do not exceed your RRSP contribution limit. Check your Notice of Assessment for the maximum amount you’re allowed. There’s a maximum over-contribution limit of $2,000 and going over will end up attracting a steep penalty.

Other considerations

• Don’t rush into the wrong investments when you make your RRSP contributions. Temporarily park your contributions into a cash account within your plan. Take your time and make your investment decision later when you’ve done your due diligence.

• Consider appointing a beneficiary.

• Keep in mind any RRSP withdrawals are taxable in the year of withdrawal.

• Keep in mind any spousal RRSP withdrawals may be taxable by the higher income earner if the rules are not followed. Consult with your advisor before making this move.

• You can still make contributions to a spousal RRSP after you turned 71 if you have the room, providing your spouse is not yet 71.

• And remember your RRSP is, first and foremost, savings for your retirement. Do not use it as a short term savings vehicle.