If you find a tax tip that is relevant to you, you would be advised to check with your accountant and/or Revenue Canada to make sure that there have not been any changes. These tips are provided free to you to guide you. You assume full responsibility for using them and should confirm them before using them. The General Tax Guide explains many of the points mentioned below. This is not intended to be a rewrite of the Guide; please get one and go through it for all the items which may apply to you.
NOTE: when you are done learning how to CHOP your taxes, don't forget to check out my Diamond Willow Walking Sticks and Hiking Staffs page by clicking HERE.
Finally, I managed to get into Canada Customs’ website to look at ALL aspects of MY ACCOUNT there. They have been down for
awhile and had a lot of problems but now, it seems you can get in once you have registered properly.
Canada Revenue Agency
"My Account for Individuals"
click “Login” and enter your:
security questions are not case-sensitive, e.g:
paternal grandfathers first name:
first name of first love:
in what city or town did your mother and father meet:
in what city or town was your father born:
in what city or town was your mother born:
A handy tool. You may have to ask for a “CRA security code” which they will snail-mail to you and which has an (soon) expiry date.
Best to keep a note of the date on which you logged in; they will ask you next time, to confirm that the date is correct. Plus, they will give you a “Your 2011 NETFILE access code” for your next tax return.
You can even adjust your figures there and update your address, phone number etc.
I went there to confirm how much I’ve paid in instalments this year and to see how much my RRSP and TFSA limits were and how much Net Capital Loss I have for my 2011 return. Not all of this was clear on my last Notice of Assessment.
Should you file a tax return? "YES." If:
have children and want the Canada Child Tax Benefits plus the
related provincial payments
2. you want the GST/HST quarterly payments
3. CCRA has requested that you file a return
4. there is a chance that you may be entitled to a refund of tax, CPP, or EI deductions
5. you are a student and want to transfer or carry-forward Tuition and/or Education credits
6. you owe tax or CPP (by not filing or late filing, you could lose 'big time.'
7. you had capital dispositions such as the sale of stocks
8. you have to pay back any Old Age Security benefits
9. you have to pay back any Employment Insurance benefits
10. you have "Earned Income" and want to build up your RRSP deduction limit
11. you have self-employment income and have to pay CPP premiums
12. are involved in the Home Buyers' Plan or the Lifelong Learning Plan.
If you are not sure, the safest bet would be to file a return.
1. RRSP (Registered Retirement Savings Plan):
Take full advantage of your RRSP deduction. For a detailed explanation of this, see the separate page on RRSPs.
2. BUSINESS AT HOME:
If you use your home or part of it, for the purpose of earning taxable income, you may be eligible to claim a portion of your home expenses as business expense, reducing your taxable profit, and your tax. To decide if you can, call CCRA at their toll-free number and ask for Interpretation Bulletin IT-514: "Work Space in Home Expenses." It is up to you to prove that your situation meets the criteria, if you are audited. Be sure NOT to claim this if you don't really qualify. If you take care of the children of other people, and you provide food, drinks etc. you can claim the costs of these items.
3. OTHER IDEAS:
Check my other page, "Checklist for Starting a New Business." (on my website on the WWW)
4. BUSINESS REPORTING:
Summarize your business income on CCRA's form T2124, "Statement of Business Activities" even if you use an Accountant's services. Do as much of the work as possible yourself to minimize accounting fees. Note on that form, line 8225 is labeled "Telephone and Utilities" but this does NOT refer to a portion of your home utility bills if you are eligible to claim them. This line is for other premises owned or rented for the business. If you are claiming a portion of your home expenses, claim them on page 2 of the form, in the section "Calculation of business-use-of-home expenses."
5. MEALS ON THE ROAD:
If you are in the trucking or transportation business as an employee, be sure to claim meals if you buy meals when away from home. Use form TL2.
6. CLAIM IS DISALLOWED:
If CCRA disallows any claim you make for any deduction, be sure to find out why it was not allowed. Do not just assume that they disallowed it properly. There may have been a minor error which can easily be corrected, to allow the claim. If you cannot get satisfaction from CCRA, or understand the situation clearly, see an accountant.
7. BIG REFUNDS:
When I see anyone get a "fairly large" tax refund, it reminds me that this is not the sort of thing a person would allow if he/she was concerned about "good financial planning."
If you are getting a big refund, it means that the government has had your money as a loan from you, and they are not paying you any interest on that loan.
If you had to pay when you filed your return, it indicates that you have had their money on an interest-free loan. That's good for you!
Anytime you want to lend me money, interest-free, I'll grab it and laugh all the way to the Bank!
If you are going to get a large refund next time, you could rearrange your affairs to get that refund up front, with every paycheque. You could then use the money sooner to pay bills which are costing you interest, or put $$ into your RRSP sooner with great benefits later. As the Financial Post reported, January 14, 1999:
"Say you pay $356 every other week on a 6%, $10,000 mortgage amortized over 20 years. Your current payments will retire that debt in just over 17 years at a total interest cost to you of $59,676. If you boost your payment by $200 in extra take-home pay, you'll be mortgage-free eight years sooner and save nearly $31,000 of interest."
A large refund could result from such situations as the following; maybe you:
claimed a spouse who had
little or no
claimed the Northern Residents' Deduction
had large RRSP contributions
made child support payments (more on this later)
paid large medical bills
had employment expenses
claimed "Equivalent to Married" (single parents)
had Tuition Fees and/or Education Amount, or transferred such from a child
had losses carried forward from prior years
are paying union dues yourself as opposed to having them deducted from your salary
claimed child care expenses
claimed attendant care expenses
had moving expenses
are paying interest on an investment loan ("carrying charges")
are repaying EI or other social benefits
are entitled to the overseas employment tax credit
made significant charitable donations
Some of these can be handled by preparing a new TD-1 form at your employer's payroll department. For the others, you could write to CCRA to indicate that the tax being withheld from your salary is too much and is causing hardship. You could ask them to provide your employer with a letter authorizing the employer to reduce your tax deductions each payday. This letter expires at the end of the calendar year, so for next year you would have to write another.
SPECIAL NOTE to my clients: I have the above available for you as a free handout, and on the back I have a "form letter" to CCRA which you can copy and use.
8. MEDICAL EXPENSES: (be SURE to see tip #68 as well!!)
I hand this to my clients who may need it:
WHAT CONSTITUTES MEDICAL EXPENSES:
As a rule of thumb, almost anything that you need, in order to make your body work better, is considered to be a "medical expenses". This includes even such things as crutches and batteries for hearing aids, and also "Health Care" premium payments to Blue Cross and premiums you pay to private health insurance plans. It does not include premium payments to a Provincial Government plan such as Alberta Health Care. It also includes payments for professional services to a Psychoanalyst, Chiropractor, Naturopathist and many others. Dental costs are also included, as are a long list of medical apparatus and materials such as eyeglasses and contact lenses, wheelchairs, ambulance charges, etc. The list includes include air and water filters and purifiers, part of the cost of air conditioners as well as electric or sealed combustion furnaces and visual or vibrating signal devices such as a visual fire alarm. Some of the "apparatus and materials" must be prescribed by medical practitioner to qualify. Also included is the cost of training to learn lip-reading and sign language for persons so disabled. Various costs incurred to adapt vehicles or buildings to make access easier for disabled persons have been added to the list. If you have to travel (more than 80 km) to another location to get medical attention which is not available in your locality, you may claim all traveling expenses, including fares, meals and lodging. If it is necessary for someone to accompany the patient, expenses for such attendant would be included also. If you are driving to another city for medical attention, you can claim as part of your overall medical expenses, and instead of the cost of gasoline, a "rate per kilometer." You can also claim the cost of meals. The rates are not the same across Canada. See #68 below. Other expenses which qualify as "medical expenses" include tutoring for persons with learning disabilities, costs for the care and supervision of disabled persons in a group home and talking textbooks for students with a perceptual disability. The list of items which qualify is long; too long to list here; for details get a copy of the T1 General Guide and check the details for "Line 330 - Medical Expenses." Interpretation Bulleting IT-519 is a comprehensive list of all the rules. NOTE: "Medical expenses paid or provided for by an employer but included in the employee's income are deemed....... to have been paid by the employee and, therefore, can be claimed by the employee...." (IT-519R2, April 6, 1998)
If you are covered by a medical insurance plan which pays for (part of) the expense, your medical expense is limited to the part (if any) which you had to pay.
WHEN TO CLAIM (for what period):
On your income tax return for, say, the year of 1998, you may claim all medical expenses for any consecutive 12-month period ending any time within the calendar year of 1998. To decide on the period to claim, to get the maximum tax break, list all your expenses for the two years, 1997 and 1998, in order of date. Then, scan the two-year list and look for the larger amounts. Pick the 12-month period in which you get the largest total. For example, suppose you had some large costs in mid-1997 and some large ones in early 1998. You could, for example, pick the period June 1, 1997 through May 31, 1998, (365 consecutive days) if that would give you the largest possible total. It might also be possible to arrange payment dates of medical expenses in such a way that you can get all the large bills into the same 12-month period. Assume that you were planning to claim, on your 1998 tax return, all bills for the period January 1 - December 31, 1998. Assume further that you needed some dental work done ..... soon. Speak with your dentist. Possibly you could pay for the work in late December and so include those costs with the other 1998 costs. The dental work could be done after the end of 1998.
WHO CLAIMS THE MEDICAL EXPENSES:
Usually the spouse (including
Common-Law Spouse) who has the lowest income would be the one who
would get the best tax break for the medical expense claim. That
spouse may claim all medical expenses for the whole family. If
you are claiming medical expenses for a dependant (not including
spouse) whose "Net Income" (line 236 on his/her tax
return) is more than $6,456 (1998), the claim for that dependant
needs to be reduced; the calculation is explained in the Guide at
SPECIAL NOTE: a new benefit was added for 1997 and subsequent tax years. A "Refundable Medical Expense Supplement" was introduced for low-income families. If you are claiming Medical Expenses on your tax return, a credit of up to $500 may be claimed. To make sure you qualify, check the Guide, "Line 452" and Schedule 10.
9. INVESTING MONEY FOR YOUR CHILDREN:
This is what I give my clients who may have use for it:
Many of us would like to put some $$ aside for our children or grandchildren's education. There are tax implication to this, however and unless you do it correctly, you could get stung.
If you give cash to a child under the age of 18, and that cash is invested on behalf of that child, and that investment earns income, such income must be reported on the income tax return of the giver and he/she must pay tax on it. This applies even if the T5 or T3 slip has only the child's name (and social insurance number) on it. If Capital Gains are earned on the investment, such capital gains are not "attributed" back to the giver.
To some extent you can get around this problem. The child may invest his/her own income. The child's income can be from such sources as the monthly Child Tax Benefit payments which the mother may receive. Also, a child may get a periodic "allowance" for chores such as mowing the lawns, shoveling snow, babysitting etc. etc. Even "small" cash gifts at birthday or Christmas time can be considered "the child's income."
A child, like anyone else, can earn up to $6,456 (for 1998) per year without any tax implications. That is the amount of each person's "Personal Amount."
Here is a situation which may be helpful to a grandparent:
Grandfather wanted to give $1,000 to his new granddaughter, Anna. Anna would then invest this until she was ready for University. BUT, if grandpa gave this $1,000 to her, the income earned on it, each year, would have to be reported on grandpa's tax return. A very awkward and expensive situation.
The way gramps got around it was like this. He gave the $1,000 to Anna's mother and suggested that she put it into her R.R.S.P. This way Mom would get a tax break of something like $400.
Mom would then keep that RRSP growing until Anna was 18 and ready for university. At that time, Mom would do one of two things:
(a) cash in the RRSP and give Anna the proceeds (but Mom would have to pay tax on all those proceeds), or
(b) keep the RRSP for herself, and give Anna the same amount of cash, from Mom's other savings. This way the taxman would not be able to take any.
One final way that Anna could be financially provided for would be to use an RESP (Registered Education Savings Plan"). Up to $4,000 per year can be set aside into an RESP for each child with a lifetime limit of $42,000 per child. The contributor does not get a tax deduction for contributions to a RESP but the earnings of the plan are not taxable until the child cashes in the plan and then the child reports the proceeds as taxable income. IMPORTANT: see point 55, below.
KPMG Daily Tax Tip for January 28, 1999 added the following:
If you or other members of your family give money to your children under 18 so they can invest it and earn income, the income from the invested money will be taxed in the hands of the person who gave it to the child, not in the child’s hands. But if your children receive money from relatives who are not resident in Canada, investment income from that money is not subject to the same rules. Any gifts your child receives from relatives who are not residents of Canada should be kept in a separate account specifically for the child and invested for his or her benefit. Income earned from these investments will be taxed in the child’s hands.
Whatever you do, don't mess with CCRA. They are human and if there is a problem they are most helpful in solving it. But if you are going beyond the rules, you will probably get crucified. They have no mercy on cheaters. I have seen many people over the years get into very deep trouble. Fair warning.
11. OLD RETURNS:
If you become aware that you have made errors on old, past years' tax returns, you can make adjustments to them. Just write to CCRA. You will probably be able to go back as far as 1985. Do not file a new return.
12. DISABLED PERSONS:
If there is a disabled person in your family, that person is, depending on the severity of the disability, eligible for a very large "disability amount." The rules on this have been tightened but if a person is "Markedly Restricted" in his/her in their ability to perform "basic activities of daily living, the amount should be available. Get CCRA's form T2201: "Disability Tax Credit Information" and have your doctor complete this form. If the disabled person does not have income, and does not need this credit amount, it can be claimed by another family member, with limits. IF YOU are disabled, or know of someone who is, be sure to check out my page for Disabled Persons.
If you are a student, and have paid tuition fees (more than $100 to one institution), you can claim that amount. If you were in "full-time attendance", you can claim another $200 per month. For "part-time" attendance, you can claim $60 per month. The number of months for which you qualify, as well as the amount of tuition you paid, should be reported to you on CCRA's form T2202, supplied to you by the educational institution. If you do not have income to be able to benefit from these credit amounts, you can transfer them to a spouse, parent, grandparent or to the parent or grandparent of your spouse. Also, you should check out CCRA's website at http://www.ccra-adrc.gc.ca/menu-e.html Note that starting in 1997, students have been given some additional tax breaks; they can now claim with their Tuition Fees, such as athletic and health services fees. See details at Line 323 of the Guide. If you do not want to transfer these credits, you can carry them forward and use them yourself in a later year. You can transfer up to $5,000 minus the amount you need yourself to reduce your own tax to zero. Note that students may also claim interest paid on a "Student Loan." It is a "Non-Refundable" credit, similar to your "Personal Amount" and is claimed at line 319. If the student does not need it, (s)he may carry it forward for up to 5 years. It may not be transferred to another person.
14. CHILD CARE EXPENSES:
If you paid someone (not your child) to look after your child(ren) so that you could be employed or self-employed or attend post-secondary educational classes, you can claim child care expenses. Be sure to get receipts from the care-giver, showing to whom the payment was made, the dates, amounts paid and names of children cared for. To claim these amounts, use CCRA's form T1065. A recent change allows child care expenses to be claimed for children up to age 16. Note that beginning with the 1998 tax year, larger deductions are allowed. The amount paid to each care-taker needs to be split between the children looked after. This is because the amount claimed as a deduction may affect the Canada Child Tax Benefit which you may receive. NOTE: in some cases you would be better off NOT to claim Child Care expenses because you might lose more in CCTB than you will save in income tax.
Don't. CCRA would have you believe that this is the only way to go. As an accountant who has been doing income tax returns for 40 years, I am convinced this is not in YOUR interest. As reported in the Financial Post (and other papers), if you e-file, you are more likely to get audited, checked or receive requests for more information. FURTHER, if you make an error, it may be difficult if not impossible for CCRA to catch it. If they then catch it years later, you could get stiffed with HUGE penalty and/or interest charges. I have personally been involved in cleaning up an incredible mess caused by another accountant who e-filed for a client. AND NOW, with all the "hacker" problems, many of us realize that nothing is sacred; nothing is 100% safe. I do NOT recommend E-Filing. If you have read tip #7 above, you will realize that you should do all you can to "get your refund up front" and work toward getting very little, if any, refund, and then you won't be in such a hurry to get your refund either.
16. COMPUTER PROGRAMS:
This is another area where many of us are being led down the garden path by glitzy advertising. Don't get suckered. You may have heard about some of the disasters that took place in 1996 due to programming bugs. I have looked hard and long at these programs but have yet to find one that really is worth using. I have seen intelligent people, including accountants and teachers, use these programs (even the BIG NAME program - you know the one I mean!) and make an absolute mess of their tax returns and overpay their taxes. Messes which cost them dearly. Go to someone who has been doing tax returns for a lot of years. Yes, I can hear you: "Yeah, well of course he would say that; he's in the business." True but what I'm telling you here is true. Did you see some of the written apologies software companies sent out apologizing for the bugs in their programs? I tested one program and compared the results with what I had done, manually. By doing it manually, I had a refund of $175.00 more than what the expensive, sophisticated computer program had come up with. This was a very expensive program. When I spoke with the people who wrote/sold it, they said, basically, "well, it can't do everything." In another case, the computer said my client had a refund coming of $800 but when I did it myself, it was actually $2,200! In another case a client had a relative do their two returns for 1996. For 1997 they came back to me. After a quick study of the 1996 returns I mad a phone call to CCRA and got them back approximately $600 which they had overpaid for 1996. If I kept track of all the returns I have had to fix due to untrained people doing tax returns on their computers, I could fill a very thick book. A tax person with many years of practice can use these programs as tools, but in the hands of untrained people, these programs are dangerous weapons! As I told a client, "I own a hammer, but I sure cannot build a house!"
Without doubt, all of us trained tax professionals spend huge amounts of time straightening out messes made by untrained people and getting back for our clients large sums of overpaid taxes.
I have found serious problems with even the most popular programs on the market. For the 2000 tax year I began using Intuit Greenpoint's "Profile" software and that, I am pretty sure, is the only decent one available. But it costs $250+
17. CHARITABLE DONATIONS:
Not all charitable donations may be claimed. If a receipt is valid, it will have a registration number from CCRA printed on it. Without that, forget it. If you give less than $200 per year, it may be best to save your receipts for a few years and claim them all at once. You may carry them forward for up to five years. The reason for not claiming them every year is this: on the first $200 that you claim, you get 17%. On all the rest (over the first $200), you get 29%! Husband and wife should group all their donations together and one of them should make the claim. In Alberta, it may be best for the spouse with the lower income to make the claim, even though I have read of professional accountants saying that this is not so. And I have noted that computer programs do not make this provision either. But it's true. Check it out. Donations may now be as great as 75% of Net Income. (up from 50%) The calculation for your claim is now no longer on page 3 of the General Tax Return; there is now a special form: Schedule 9. Donations made by children can be claimed by the parents; there is no provision for this in the Tax Act, but CCRA normally allows this as seeming "reasonable" to them, considering the money probably came from the parent in the first place. The income tax act (Sec. 118.1) does not mention that one spouse may claim the donations of the other so technically, this is not possible. Yet, as a matter of administrative policy, this is normally allowed. Note that in a court case of Dennis Douzieh of Edmonton, CCRA for some weird reason challenged this and disallowed it; the judge sided with CCRA. This was detailed in the National Post of July 18, 2000.
18. LEAVING YOUR JOB:
If you will be leaving your employment this year, your income next year could be much lower than this year. If you will be receiving a (taxable) retiring allowance, vacation pay, bonus or any other extra income, it might be to your advantage to have your employer pay that to you next year instead of this year. If your income this year is higher, you may well drop into a lower tax bracket next year and pay much less tax on it then as compared with now. If your taxable income, that is, your total income from all sources, minus RRSP deductions, pension deductions, Northern Residents' Deduction etc. is less than $30,000 (prox), you will be in the lowest of the three tax brackets (17% Federal + provincial). If your taxable income will be over $60,000 (prox), you would be in the highest tax bracket. Keep in mind, that even if you are in the middle or top brackets, the first $30,000 is still in the bottom bracket and the next $30,000 in the middle (26%) bracket. The excess over $60,000 would be in the highest, the 29% bracket.
19. WAGE-LOSS REPLACEMENT PLAN:
If you have coverage under such a plan, where you work, and if you are off work for illness, and receive income from such a plan, take note that you may not have to pay any income tax on that income. If your employer had contributed to the plan, then the benefits you receive must be reported as income on a T4A slip. You must report that amount as income at line 104 on your tax return. The amounts which you have contributed (your employer can tell you how much) can then be deducted on line 232 of your tax return. Attach a note to your return explaining what you did. See details in Interpretation Bulletin IT-54.
20. KEEP YOUR PAY STUBS:
Sometimes errors are made when employers prepare T4 slips. You should keep your pay stubs/slips all year and check your T4 slip before trashing the slips. If something does not make sense, advise your employer immediately. A few years ago a client came in to have me prepare her tax return. Something on her T4 slip did not make sense to me (she had not noticed) so I called the employer. Finally, after trying in vain to explain it to various people there, I got to talking with a senior person who knew the score. I explained my problem in detail. This person called me back an hour later to tell me that their computer payroll program had a bug and they would have to re-print and re-issue all their 3,000 or so T4 slips. He hoped not many of their employees had yet filed their tax returns. Me too.
If you have to buy your own tools to perform your duties as an employee such as a mechanic or hairdresser, you may NOT deduct the cost of these tools. If you have to pay for supplies which you use up in the performance of your duties, these may be deducted if the proper forms are completed. True, it seems unfair and I have argued loud and long about this unfairness, but as an employee, you may not deduct the cost of any tools. Never. Accountants are deducting these costs and people are getting away with it, but if they get checked, they will have to pay the taxes, high interest, plus, possibly, penalties. Trust me on this one. Last year some taxpayers thought they had found a way around this. The employer paid the employee by way of a *separate* cheque, an amount each payday, calling it "tool rent." CCRA is aware of this, and has written to tell me this would *not* stand up to an audit.
(Note the tip regarding Chain Saw Operators, below)
If you have to buy any special clothing in order to perform your duties as an employee, same situation as #21 above. Trust me. No can do. Unfair in some situations, sure. Complain to the Minister of National Revenue.
23. LATE FILING:
As you probably know, your tax return must be mailed by the end of April for the preceding year. That gives you four months to prepare your numbers. There are situations where, due to accident or illness, a person finds it absolutely impossible to file on time. In the past, no excuse or reason for late-filing was accepted. Now, however, if you have a very legitimate reason, you may well be allowed extra time. Note however, if you do not owe any tax, you do not have to meet the April 30 deadline. If you have a refund coming, CCRA probably loves it when you file late because they do not have to pay you any interest on your refund unless they take more than 45 days to process your return - an unlikely event. No, they will not send you flowers nor even a Thank-You card for filing late for a refund.
If you are a clergyman/woman, you may be eligible for a very generous deduction called the "Residences of Clergy." This gets rather involved and has C.P.P. consequences. Read the details in IT-141.
25. FEES TO PREPARE YOUR RETURN:
In spite of what some accountants do, you may not deduct the fee you pay to have somebody prepare your income tax return, UNLESS "you have income from a business or property. Further, to qualify, you must accounting services as part of the normal operations of your business or property."
26. ELECTED OFFICIALS:
If you hold a public position for which you were elected, and you receive an allowance, you should rad IT-292 to determine whether or not you have to pay income tax on such allowances.
27. U.S. SOCIAL SECURITY:
If you receive such income, under paragraph 5(b) of Article XVIII of the Canada/U.S. Tax Treaty, only one-half of the payments received are subject to Canadian tax. Report the full amount received at line 115 as income and then deduct one half at line 256.
28. USE OF YOUR VEHICLE:
If you use your own vehicle in the performance of your duties as an employee, and receive monies from your employer for this, you may not have to pay tax on those amounts. Keep very close track of all your expenses to operate that vehicle, including insurance, registration (plates), washing, tires, etc. Also, keep a log of all trips taken with that vehicle, so you can show how much the vehicle was used for personal driving and how much in the performance of your duties as an employee. CCRA has been hassling people in this situation so keep good records and bills for every little expense on the vehicle. If the amount your employer pays you for the use of your vehicle is "reasonable" and is based on the amount of driving you do for that employer, and no other amounts are paid by the employer for costs on that vehicle then most likely the amounts you receive have no tax implication. If the employer pays for extra insurance, parking, ferry fees or toll-charges, that should not affect this. Bottom line: keep detailed records of travelling and costs. If the employer pays you a flat-rate amount per month for you using your vehicle on his business, those amounts must be included on your T4 as income.
Check with your payroll department, CCRA or your accountant for details.
If you are a waitress, you should report the tips you receive, and pay tax on that income. If you do not, and get checked, you could regret such an oversight. True, it is impossible to be accurate; do your best; be reasonable in the amount you estimate.
30. DIVIDENDS/CAPITAL GAINS/INTEREST:
All three are taxable income. At one time we could earn $1,000 of interest each year and not have to report it. Now, we must report every cent of interest earned. Dividends received from taxable Canadian corporations are taxed at a lower rate. You will notice on the T3 or T5 slip which you receive for dividends, that there is a Dividend Tax Credit. Yes, the amount of the "Dividend: Taxable Amount" is higher than the actual dividend you received, but the credit makes this taxed more lightly than, say, interest income or salary/wage income. Capital gains are also taxed more lightly; you pay tax on only 3/4 of the gain. A capital gain occurs when you sell something for more than it cost, but does not include items which you buy and sell in "the normal course of business." IF you had a capital gain, make sure that you think back and make sure you didn't "make an election" on your 1994 tax return to provide for the eventuality of this gain; if you made an election, you may have a much smaller (perhaps none) amount of the gain to pay tax on now.
31. THE IMPORTANCE OF NET INCOME:
For income tax purposes, the term "Net Income" refers to the sub-total on your income tax return, at line 236. This figure is used in various calculations such as your quarterly GST payments, Child Tax Benefits, and the amounts you may deduct for Medical Expenses and Charitable Donations. (Net Income is used in other areas also). Thus, it is very important to keep this amount as low as possible. There are other amounts which are deducted AFTER calculating the Net Income. They are not as important. Check your tax return (lines 207 - 232) to see which deductions you can use to mimimize your Net Income. Some of the more common deductions in this area are RRSP contributions, Child Care expenses, Employment Expenses, Alimony Paid, Moving Expenses and Meals (for truckers etc.)
32. EMPLOYEE GST:
If you, working as an employee for someone else, has to pay for certain expenses, and does not get reimbursed by the employer, and those expenses included GST, you can get that GST back. File form GST370 with your return and claim the amount at line 457. Note that if you receive this amount, that is, if CCRA allows it, then you will have to pay tax on it next year! Yes, it must then be reported as income at line 104 on next year's tax return. Screwy? Yup! (NOTE: Heather Young told me it is not screwy at all.............actually, she is right; it does make sense but many of my clients have referred to this as being super screwy so I used that expression. Thanks, Heather.)
33. MARGINAL RATE:
You may have heard this term before. Good reason; it is important for you to know what your marginal rate of income tax is. Suppose you prepared your return and figured out that your refund was $100. Now, suppose that you suddenly remembered that you had earned $100 on some little job you did for somebody, and had forgotten about it. Being a noble, honest soul, you tediously re-did your entire tax return (you had not mailed it yet, so could change it) and you find that your tax refund dropped to $60 from the original $100. This means that the $100 you earned cost you $40 in tax. That means your Marginal Rate is 40%. It is sometimes called "the rate of tax you pay on the last dollar you earned." Note that this does not mean that you pay 40% on every dollar you earn. For example, if your total income for the entire year was $6,000, you would pay absolutely no tax at all. Take a moment right now and dig out your copy of the last tax return you did. Now take the amount at line 150: "Total Income" and take the amount at line 435: "Total Payable". Divide the latter number by the former number and you will see that your rate was most likely far below 40%, even though your Marginal Rate was 40%. That's because of factors such as your Personal Amount of more than $6000 being tax free.
If you feel that you have been treated unfairly by CCRA, write them a letter explaining the situation. Take the time to write it politely, clearly and fully. You will get a response in like manner. In early 1991, then Revenue Minister Otto Jelinek came out with his so-called "fairness package" which showed that CCRA does have a heart.
Even though it has been mentioned earlier that employees may not deduct the cost of tools, there is a situation that is "special." Those who use Power Saws in the performance of their duties as employees may deduct the cost of their saws. For details, ask for IT-74-6R2 or the latest version. It's title is "Power Saw Expenses."
Go to Tax Tips Page 2......tips 36 - end
On December 17, 1999, I emailed this to my clients and a few others:
Revenue Canada has changed its name to Canada Customs
Revenue Agency; CCRA.
Filing deadline for 1999 returns is April 30, 2000 (unless you have a refund coming)
The Northern Residents' Deduction is still in place as it was for 1998.
1. Personal amount increased from $6,456 to $6,794
2. Retroactive Lump-Sum Payments which you received: You may have received a lump-sum payment of certain income in 1999, of which parts were for previous years after 1977. You have to report the whole payment for 1999. Under proposed changes, you can ask (CCRA) to tax the parts for the previous years as if you received them in those years. They will do this for the parts that apply to years throughout which you were resident in Canada, if the total of those parts is $3,000 or more (not including interest) and it is better for you. Eligible income includes: -employment income and damages for loss of employment received under a court judgment, arbitration award, or lawsuit settlement agreement; -periodic pension benefits (which do not include amounts received when leaving the plan); -wage-loss replacement plan benefits; -spousal child support payments; and -Employment or Unemployment Insurance benefits. The payer will give you a completed form T1198, "Statement of Qualifying Retroactive Lump-Sum Payment."
3. Emergency Volunteers:
In 1999, you may have received an allowance from a government, municipality, or other public authority for your work as a volunteer ambulance technician, fire fighter, or search, rescue or other emergency worker. If so, under proposed changes, the T4 slip issued by such an authority generally will show only the taxable part of the allowance, which is the part that is more than $1,000. However, if that authority employed you (other than as a volunteer) for the same or similar duties, the whole allowance will be taxable.
4. Spousal Amount: For 1998, if your spouse had Net Income of $5,918 or more, your claim for the Spousal Amount was reduced to zero. Now that amount is up to $6,290. Also, for 1998, your spouse could have Net Income up to $538 without reducing your claim for that spouse. Now, your spouse can earn up to $572.
5. Equivalent - to - Spouse Amount: (this is the big claim used by single parents) The same numbers apply as in item 4 above.
6. Medical Expenses: The types of expenses which may be included have been broadened to include costs related to Group Homes, to Therapy, to Tutoring and to cost of Talking Textbooks.
7. Vehicle operating expenses: The way you claim these costs for purposes of Medical Expenses, for Northern Residents' Deduction (very rare) and Moving Expenses has been changed.
8. The Schedules have changed rather dramatically too. For 1999 we have these schedules: 1, 2, 3, 4/5, 7, 8, 9, 10, 11, 13. Plus, there is a Worksheet.
9. The Federal Individual Surtax has been reduced from
3% to 1
10. Tax rates are unchanged.
11. Schedule 5 is now not for "Equivalent to Spouse" but rather it is to list all the details for anyone for whom you are claiming any kind of amount, such as Equivalent to Spouse, or Caregiver Amount or Amount for an Infirm Dependant.
12. Schedule 7 is now "RRSP Unused Contributions, Transfers, and HBP or LLP Activities. LLP stands for Lifelong Learning Plan.
13. The CPP exemption for 1999 is $3,500 which means that if your total earnings for the year are under that amount, you pay no CPP. If your earnings are greater, then the first $3,500 is exempt. The CPP rate for 1999 is 7% (versus 6.4% in 1998). If you were on somebody's payroll all year, then, of course you pay 3.5% and your employer paid the other 3.5%.
14. For students, the Education Amount is still $60 per month for Part-time classes and $200 per month for full-time classes.