These tax tips have been excerpted from Evelyn Jacks’ Essential Tax Facts: How to Make the Right Moves and Be Audit-Proof, Too,which has been fully updated with the information your clients need to know when filing their 2018 taxes. It’s not too late to give Canadians the gift of financial literacy this holiday season – and shipping is free!
Game-Day Tax Strategies
- Be sure to adjust your prior filed returns for errors or omissions before the end of the year, especially if you suspect CRA owes you money. Remember, the 2008 tax year is statute-barredas of January 1 so you’ll leave money on the table forever if you miss this opportunity.
- Plan your income sources: Earning a variety of different income sources with different tax attributes can help you to “average down” the taxes you pay.
- Time your income receipts. Before you pull out that extra $5000 from your RRIF to surprise your spouse with a vacation for Christmas, consider doing so in January instead. This tactic will postpone income taxation until the 2019 tax year. Do the opposite if income will be higher next year.
- Don’t skimp on your RRSP contribution: An RRSP contribution will increase your tax credits and your after-tax cash flow,too, because it will help you reduce clawbacks of important social benefits you’ll receive all year long.
- Top up your RESP contributions: It’s a gift that will generate a Canada Education Savings Grant for you, which will embellish on education savings opportunities for your family.
- File family tax returns together: Because many credits are based on “family” rather than “individual” net income, you and your spouse need to file tax returns together. It’s a smart start to the new year to focus on family tax planning. Hunting down and organizing receipts early can really help, to avoid the annual tax filing panic. Spend some time getting organized over the holidays if you can.
Tax Tools of the Trade
- Own a private corporation? File a T2corporate tax return and pay attention to the new Tax on Split Income rules for adults starting in 2018. As well, inquire about the new rules regarding passive investment income in a private corporation, which begin January 1, 2019.
- Sold or transferred your home? Form T2019 Designation of a Property as a Principal Residence will need to be filed. It’s complicated, so be sure to solicit some professional help with this.
- Leaving Canada for good? List reportable properties with your final T1 return: T1161 List of Properties by an Emigrant of Canada. You may have a departure tax, so get some experienced professional help.
Your Audit-Buster Checklist
- Get organized: Keep meticulous tax records—in order—all year long to save time and money on filing your audit-proof tax return. This is your first defence in the tax filing requirement.
- Preserve your appeal rights: Take note of the date on your Notice of Assessment or Reassessment—CRA’s response to your tax filing. This is used to determine your further appeal rights. Keep a hard copy of this form with your permanent tax records.
- Globetrotters: A departure tax is payable if you leave Canada permanently, but it’s reversible if you change your mind. Keep all your tax records.
- Investors: Understand the different definitions of income—both active and passive—and the power that CRA auditors have to challenge their tax attributes.On an audit, you may need to prove why an investment should be considered passive rather than active in nature, to save tax dollars.
- Beware of the potential for income recharacterization: CRA can consider a single transaction or a series of transactions to be business income (100percent taxable), although you filed them as a capital transaction (50 percent taxable). The burden of proof is on you to convince CRA why you are right. Keep detailed records about the reasons for the transaction, its relationship to your regular line of work and other criteria set out by CRA in its Interpretation Bulletin 459.
Share the gift of education with your clients this holiday season! By
discussing the six essential tax tips your clients need to know for 2019 and
beyond, you can help Canadians become more informed on the tax-efficient
decisions that will improve their financial health in the new year.
KBR’s top tax tips have been excerpted from Essential Tax Facts: How to Make the Right
Moves and Be Audit-Proof, Too,which has been fully updated with the information your clients
need to know when filing their 2018 taxes. Author Evelyn Jacks says, “It’s the
obligation of every taxpayer to know and follow the tax rules, and keep records to
back up claims. These Essential Tax Facts have been written to empower
Canadians in their often frustrating relationships with
CRA—which are for life, by the way—so that they can keep more of their
hard-earned dollars working for their financial future.”
these tax tips with your clients to help you make the right tax moves for their
households and be audit-proof, too. The complete book also makes
a great Christmas gift.”
- All taxpayers should file
by April 30. The filing due date is April 30 for
individual returns and June 15 for those who file returns to report
sole-proprietorship income or expenses. However, if proprietors owe money to
the CRA, the interest clock starts ticking the day after the April 30 tax
filing due date, just like for other taxpayers.
- It pays to have a tax pro. The burden of proof for the numbers on your return is always on you,
even if CRA has made a mistake;
therefore, it is important to establish a relationship with a competent
professional you can call on, should you have sudden trouble with the CRA. More
common, your tax pro can help you with administrative issues that hold up your
tax refunds, adjustment requests or to prepare for a tax audit.
- Do a “tax-360.” Most people are not aware of their “carry-over” opportunities; that
is, the potential to use certain tax provisions in previous or future tax
returns to offset taxes payable. Be sure to review past returns and take future
tax planning into account rather than focusing on only the year at hand.
- Selling a tax-exempt
principal residence? You will need to know about a
new requirement when you file your T1 tax return: you must file Form T2091
Designation of Property as a Principal Residence by an Individual to report
that principal residence disposition starting in 2017. Failing to do so can
attract a penalty of up to $8000.
- Claim foreign tax credits. Where income is taxed in more than one country, tax treaties ensure
that credit is given in the country of residence for taxes paid to the foreign
jurisdiction. If you were subject to taxes in a foreign country, be sure to
claim a foreign tax credit on your
- Departure taxes. Emigrants from Canada must file a “final return” to which a
departure tax will be applied to the capital gains resulting from any increase
in value of taxable assets, as of the date of departure. This is reversible if you
decide to return to Canada in the future, so keep all your records.
In the holiday spirit yet? This news might dampen it: on Friday November 30, Statistics Canada released a report on GDP, income and expenditure for the third quarter of 2018. The big news? In 2018, Canadians have had the worst household savings rate on an annual basis since 2005, averaging only 1.4% over the past year. For the third quarter of this year, the household savings rate was a mere 0.8%; the lowest quarterly level since early in 2017.
There are broad repercussions for everyone that come with the lower household savings rates outlined in the Statistics Canada report, specifically, the impact on economic growth that is driven by consumer spending. But even more concerning are the implications to young Canadian families and their ability to financially manage an emergency situation or unexpected expense.
In fact, an October a report by the Financial Planning Standards Council indicated that 33% would fail a “financial stress test,” and face hardship should a significant unexpected expense arise. An Ipsos report from one year prior said than an unexpected expense of as little as $200 could create this situation for more than half of Canadians. Plus, they are struggling to pay down debt, too — 20% rarely (if ever) pay off their credit card balance at the end of the month.
Worse still, 31% of Canadians agree that rising interest rates push them closer to bankruptcy, and this doesn’t bode well for retirement planning. This was further highlighted in the Financial Planning Standards Council survey, which reported that 64% don’t have access to an employee savings program, and six in ten rarely maximize their annual RRSP contribution amounts.
The money moral? As the household savings rate in Canada hits its lowest point in over a decade, and the forecast is for Canadians to have even less disposable income in the future, debt management and tax-efficient income strategies become more important than ever. it’s prudent to take them into account before the holiday shopping season!